Treasurer Jim Chalmers has put a new road user tax for EV cars firmly back on the agenda as petrol prices soar.
Government sources have confirmed it’s “no secret” that the option is being examined.
Plugging a budget black hole as motorists switch to EV cars and skip the petrol excise trap, the idea would also deliver more money for highway upgrades.
All Australian motorists who buy petrol and diesel at the bowser pay 51.6 cents a litre in fuel excise. But drivers of EV vehicles pay nothing.
That fact has been lampooned on social media in recent weeks, with reels of 1980s star Tom Selleck on Magnum PI expressing the smug joy of EV drivers blissfully unaffected by petrol price hikes.
But that could be about to change.
Free ride for EVs nearly over
News.com.au reported last year that the Albanese Government was looking at a staged rollout, testing the proposed new EV tax first with trucks.
Over time, it could replace petrol taxes and apply to all cars and trucks based on distance travelled and when they are on the road to tackle congestion.
Now, revelations suggest the Treasury is closely examining the option ahead of the May budget.
The Australian reports that options include tracking road use by GPS in electric vehicles or an annual odometer reading.
Treasurer: Status quo is unsustainable
Treasurer Jim Chalmers and state governments have discussed a new road-user charge for years.
“The status quo won’t be sustainable over the next decade or two,” Treasurer Jim Chalmers told news.com.au last year.
“As more and more people get off petrol cars and into EVs we’ve got to make sure that the tax arrangements support investment in roads.
“But we’re in no rush, changes of this nature will be made, because the status quo won’t work in 10 or 20 years.”
The Albanese Government does not collect more petrol excise simply because prices rise because it is a fixed, flat-rate tax per litre, not as a percentage of the total price.
However, there are concerns about dwindling revenue from drivers for upgrading roads and highways as more motorists make the switch.
Based on a planned NSW road user scheme, a national rollout will depend on your mileage but might cost between $300 and $400 a year.
Victorian Treasurer Tim Pallas said last year that electric vehicles are “heavier and do more damage to the road network as a consequence than do internal combustion engine vehicles do.”
“By giving drivers a clear signal about the cost of infrastructure, they would have an incentive to use it more efficiently,” a Productivity Commission report said.
How does fuel excise work?
The current rate of fuel excise is 51.6 cents in excise for every litre of fuel purchased.
For a typical household with a car running on petrol, the tax costs more than $1200 a year.
But the flat sales tax isn’t paid by drivers of pure electric vehicles, who simply need to plug in their cars to recharge.
While registration and driver’s licence fees go to state and territory governments, fuel excise is collected by the federal government.
Australian motorists paid an estimated $15.71 billion in net fuel excise in 2023-24, and are expected to pay $67.6 billion over the four years to 2026-27.
However, governments have long-warned that a road-user charge will be required to fill the gap in the budget left by declining revenue from the fuel excise, as the petrol and diesel engines in new cars consume less fuel and Australians adopt hybrid and electric cars.
What does the AAA say?
The Australian Automobile Association (AAA) is calling for a national approach to road-user charging but wants a guarantee the revenue will be earmarked for road upgrades.
The AAA backs a distance-based road-user charging as a fairer and more equitable way to fund land transport infrastructure.
The 2024 federal budget forecasted a reduction in fuel excise receipts by $470 million over four years from 2024-25.
Roadblocks to reform
Currently, New South Wales is the only state with firm plans to introduce a road-user charge from 2027 or when EVs reach 30 per cent of new car sales.
Plug-in hybrid EVs will be charged a fixed 80 per cent proportion of the full road-user charge to reflect their vehicle type.
Western Australia has also stated an intention to implement a road-user charge.
Meanwhile, Victoria’s electric vehicle levy had to be scrapped following a ruling from the High Court.
Two Victorian electric car owners launched a legal challenge on the basis the tax was not legal as it was an excise that only a federal government could impose.
They won, with the High Court upholding the legal challenge.
There have been several false starts to enshrine a road-user charge including in South Australia, where the former Liberal Government planned to introduce a charge for plug-in electric and other zero emission vehicles, which included a fixed component and a variable charge based on distance travelled.
It was later pushed back to 2027 due to a backlash before the legislation was ultimately repealed.
‘Gold standard’ for reform
Some experts argue the gold standard for reform is a variable rate that factors in the vehicle’s mass, distance travelled, location, and time of day.
But there’s a big barrier to the Commonwealth imposing those charges because the Constitution prohibits it from imposing taxes that discriminate between states or parts of states.
State governments could impose those levies, but as the experience of the Victorian Government underlines, it is legally complex.
