Why Victoria should tax electric cars

By Jesse Hermans, cross-posted from Prosper Australia

Until recently, no government had a “cogent plan” to deal with impending combustion of Commonwealth fuel excise revenue. But now Victorian Treasurer Tim Pallas has risen to the challenge both to future proof Victoria’s road charging regime, and make Zero and Low Emissions Vehicles (ZLEVs) a more affordable choice for drivers.

Public roads require significant amounts of land and maintenance. Supplying road space to meet demand is increasingly inefficient in our urban areas, and comes at a high cost relative to alternatives such as public transport. Distanced based, and dynamic demand based (congestion) road-user charging have long been advocated for by economists, transport planners, and infrastructure bodies.

At present, road use and its social and environmental costs are not fairly priced. While it’s true that the accessibility benefits of the road network diffuse into land values, the benefits that accrue to road-users do so unevenly. These vary based on where you drive, how often, how far and at what time of day. High environmental costs attend mass vehicle production (e.g. mining), along with urban sprawl, microplastic pollution. The most obvious cost is emissions from fuel.

Currently the Federal government recovers some of these costs from (and benefits to) road users through fuel excise tax.[1] However this system is facing a slow motion crisis, as the market inevitably moves towards 100% ZLEVs – with leading manufacturers aiming for 2035. Numerous governments globally have also committed to targeting 100% ZLEV new car sales between 2030-2040.

The Commonwealth has not made any plans to manage this technological shift, or encourage the inevitable growth in ZLEVs. Nor has it kept pace with OECD emissions standards (and subsequent fuel savings) – measures that could save motorists $830 p.a and reduce carbon emissions. There is no plan for when fuel excise revenue runs dry. Victorian Treasurer, Tim Pallas, has decided to put the pedal to the metal.

The timing of this tax is crucial; if it is left too late, the politics become excessively hard. Currently there are “fewer than 7,000 electric vehicles registered in Victoria and only 20,000 on Australian roads”. Most of them are luxury vehicles, with cheapest being about $44,000 – indicating the tax would initially fall on those who are most able to pay. However as the cost of ZLEVs fall and more people buy them, the political resistance to introducing a new tax grows too. Victoria has a once in a century chance to technologically grandfather in a fairer road-user charge system.

At this point in time, demand for ZLEVs is not very price sensitive.[2] Global car manufacturers are on track to phase out combustion engines, and will hardly be deterred by Australia’s insignifiant import market. This makes the proposed tax levels reasonable. Lower amounts are also paid for plug in-hybrids, with the top ZLEV tax still lower at 2.5 cents per/km compared to an average ~4 cents per/km in fuel excise tax. This revenue contributes to fair road use pricing for ZLEVs, while also accounting for their environmental benefits compared to combustion vehicles.

If State governments begin to collect revenue from ZLEVs, they have an incentive to increase uptake. We see how this already plays into the government’s new target for 50% ZLEV new car sales by 2030. Tightening emissions standards is an obvious next step, and one that far sighted State governments could take alone.

The proposal also increases independence and accountability in tax and spending decisions at both levels of government. Vertical fiscal imbalance has been a problem since WWII: states pay most of the bills, but the feds collect most of the money. The gap is ~21.5% of state government funding (excluding GST), and growing. This gap is even more extreme for road expenditure. Through this proposal, state governments will be able to reclaim a revenue source from the Commonwealth, potentially reducing state-federal dependency by up to 20%.

A fairer tax system would include passive value capture through land value taxes, as well as fair road-user charges. Eventually we want to see distortionary and regressive stamp duties on vehicle transfers, insurance duties, and rego axed – timed to accelerate uptake of ZLEVs at a critical market transition point.

Finally, these reforms are coupled with excellent spending initiatives that are a win-win on many fronts:

  • It creates jobs through investing in necessary charging infrastructure
  • It improves environmental outcomes, accelerating ZLEV uptake at lower ends of the market with rebates (refunding about 10 years worth of the new tax upfront)
  • It leverages public (and commercial) procurement policy for public good

Most importantly, it future proofs Victoria’s tax system. This is pragmatic, good policy, and another example of how states are leading the charge on solid tax reforms.

[1] States charge flat registration and vehicle stamp duty, and councils fund local roads through rates.
[2] The 2019-20 budget also exempted low emissions (<120g/km CO2) vehicles from increased luxury car duties, making luxury ZLEVs more price competitive after tax regardless.

Comments

  1. Since it is a given at all levels of Australian Government, that they couldn’t organise a ‘transaction’ at a Reusa relations party, how much do you think it will cost us poor taxpayers to collect this dumb stupid tax? How about we start by ditching the Diesel Fuel rebate scheme? I’m pretty sure bike rego would be a winner too. Bloody cyclists!

  2. And while we’re at it, they should also tax the non-smokers for not paying any tax that is included in the price of cigaretes!

    • TheLambKingMEMBER

      And we should put a tax on water, because lots of people are avoiding the alcohol tax.
      And those pesky renters are not paying stamp duty – so lets collect a ‘rent stamp duty’ tax.

      If you are going to introduce a usage charge then you need it for every car – so there is still an incentive to switch to an EV (as you pay no petrol tax)

      • This

        Usage tax for every car with fuel excise becoming a dirty car tax used for renewables or EV infrastructure .

        At the same time tighten diesel emission standard in line with EU to incentivise the VWs to get their cars here en masse

  3. Ok, I can sort of buy the argument but only if in the short term the road tax is offset by other credits or government expenditure which benefit EVs so as not to discourage take up.

    It’s still messy as hell if they want this to be uniform across the states.

  4. GeordieMEMBER

    Why is MB making an issue of this? The taxation system in Australia is a f’n train wreck, and trying to substitute one “user pays” system with another in what should be a growth industry is just daft. Australian EV take-up is miserable and a complete policy disaster, another rotten from the head case.

    While you’re at it why don’t you push for a gas vehicle subsidy scheme so we can still all enjoy taxes on fuel, push harder for domestic reservation, stick with old world dirty tech, and have done with it? Much simpler line!

  5. I don’t disagree with the long term need to somehow tax Electric cars for road upkeep reasons but at the moment I’d classify the action as: Penny wise but Pound foolish.
    There’s so much broad economic value to be extracted from the transition to Electric cars that delaying this by imposing taxes is just a silly move.
    Imagine Australia could completely eliminate our dependency on Foreign petroleum products, surly that outcome alone has a value which far exceeds any revenues raised by fuel taxes. It’s called energy independence
    Other obvious benefits especially for our highly urbanized population include
    – cleaner air
    – reduced health costs
    – reduced water population
    – better / easier / cheaper management of Electricity base load fluctuations
    -simplified integration of higher levels of intermittent (renewable) power into the grid
    – lots of support opportunities if we are an early player in this development
    Sure the real world value of this list is difficult to quantify but just because we know exactly how much we are giving up in fuel taxes, doesn’t mean it’s a good idea to tax (and thereby delay electric car introduction)

    • bearsbullsbattlestargalacticaMEMBER

      Agree, in the current policy vacuum this is just a hand-break on EV uptake. I also think the take that the cheapest EV is $44k an therefore buyers aren’t price sensitive is ludicrous, especially given the average new car in Australia costs $41k…..

      I thought my next vehicle would be an EV, but with policies like these ill just stay ICE for now.

  6. So make another regressive tax so we can subsidise business even more.

    How about we charge users costs reflective of the damage they make to the roads.

  7. StephenMEMBER

    This is still based on a lie – that the fuel excise directly funds roads. It doesn’t fund roads any more or less than capital gains tax does, or income tax, or the excise on alcohol, or on cigarettes!

    The idea that it needs to be directly replaced isn’t necessarily true either, given the health benefits that electric cars bring (lower fine particulate emission given the lack of exhaust and reduced use of friction brakes from regenerative braking), noise reduction, climate impacts, and at least at the moment, the fact that they do tend to bring in more LCT and GST on the sale than the average car does. Remember that if you’re charging an electric car off the grid you’re also paying GST on that electricity too!

    I’ve seen some analysis that electric cars, when all those things are factored in, are about even or a bit of a net positive benefit to the budget. So I can only conclude that this EV tax talk is only a cash grab, brought in before enough people have EVs to kick up a big enough stink to sink it.

    But the other elephant in the room is that cars actually put hardly any wear and tear on roads compared to trucks. From what I’ve read, given the way loads are distributed, the road wear increases by the fourth power or the relative difference in mass. So a US GAO study found that a single 18-wheeler truck can put the same wear on the road as 9,600 average cars, even though it’s only a bit more than 9 times the weight! If we’re actually taxing road use to pay for road maintenance, then the tax on EVs should be something like 10% of what Victoria is talking, and a tax on trucks should be brought in that’s at least 1000 times greater (electric cars are a bit heavier than the average car so I’ve adjusted it a bit)!

  8. Fart Mechanic

    This article shows a classic short-term thinking where the focus is on economic side of short-term money-today. No ability to even imagine what the future or tomorrow might look like is NOT considered. And this the problem..

    Reality is that all vehicles travelling on any roads anywhere will be tracked by licence plates recognition. Its already here, in use, and almost everywhere, even in police cars. This is the reason why VIC ROADS dont issue stickers anymore.

    In 5-10 years all roads everywhere will be fully covered by a “surveillance” system one way or another, meaning all road users can be charged on usage and based on weight, passengers, and distance.

    What the actual calculation will be we will know later. But reality is that petrol will be gone by then, or pushed onto the “new way” of paying-for-it regardless.

    And the only fair way to “charge” people will be by usage of the resource, and we can already “see” or monitor the people using it so this is pretty easy to do then.

    Taxing based on type of vehicle or its emission system really is failing to see the big picture!

    There is a very good reason why the rest of the world went the other way.. they know that THIS doesnt matter, its inevitable!

    What does matter is how do we tax/pay for the road when there are vehicles with unknown power-source but is using the road, and a lot less of them than what we are used to.

    We need to think and plan FOR that now!!!

    Trying to TAX EV is like taxing RED LEGO bricks, but people are using LEGO in a new way, the color is irrelevant!!!

  9. MathiasMEMBER

    If the future is Electric Vans and Homelessness, then you can pretty much bet that nobody will be visiting Victoria again ;p

    They’ll travel Australia and skip Victoria.

    Real Estate will be a Luxury for the wealthy. Everyone else will be finding other ways around it until the Australian Government comes with guns.

    Sounds like Australias about to go through a repeat of history for shooting aboriginals like the Colonial days. The only exception is, they’ll be shooting White Australians this time around.