Australian taxpayers heavily subsidise electric vehicles (EVs).
First, the Fringe Benefits Tax (FBT) exemption for battery EVs and plug-in hybrids (PHEVs) is estimated to cost the federal budget more than $550 million in lost tax revenue annually. However, the FBT exemptions for PHEVs expired on April 1, 2025, implying a future reduction in budget costs.
According to the FBT exemption rules, someone who leases a $60,000 car would save over $12,000 per year if they acquired an EV instead of an internal combustion engine (ICE) car via a novated lease.
Second, EVs are exempt from paying road user fees via the fuel excise rate of 50.8 cents per litre. The exemption from road user charges has eroded the federal budget’s tax base.
Third, EVs benefit from a higher threshold for the premium car tax than ICE vehicles.
Finally, numerous states and territories offer direct EV subsidies.
Given the generous incentives on offer, it is surprising that battery EVs remain unpopular among Australian new car buyers.
The April new car sales data from the Federal Chamber of Automotive Industries (FCAI) showed that new car sales declined to 90,614 in April, a decrease of 6.8% from the same period in 2024.
The expiration of the FBT exemption on PHEVs negatively impacted sales, according to FCAI chief executive Tony Weber.
“The earlier inclusion of PHEVs in the FBT exemption played a critical role in making these vehicles accessible to more Australians. Removing that support has led to an immediate and disappointing drop in demand in a price-sensitive vehicle market”, Weber said.
Webber also noted that battery EV sales remained weak, comprising only 5.9% of overall new car sales.
“This modest result reinforces the scale of the challenge ahead as Australia seeks to meet its emissions reduction goals under the New Vehicle Efficiency Standard (NVES)”.
The following table shows the breakdown of car sales by fuel type in April, excluding heavy commercial vehicles.
Despite the generous subsidies for battery EVs, their sales declined by 3.0% annually and comprised only 6.8% of light vehicle sales in April.
Tesla, which sold just 500 cars in a month, was the driving force behind the decline in battery EV sales.
Recall that the Productivity Commission (PC) in 2023 argued that the FBT exemption for EVs was one of the most ineffective and expensive ways to reduce car emissions.
The PC also cautioned that the FBT exemption was inequitable because wealthy households were disproportionately more likely to buy EVs, damaging the integrity of the income tax system.
As I keep saying, governments should stop wasting taxpayers’ money and leave purchasing decisions to consumer preferences and the market.
There are considerably better uses for taxpayer money than subsidising private individuals’ car purchases.
