Is An Australian EV Road User Tax Inevitable?

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Electric vehicles made headlines again this week with the Australian High Court decision to rescind an EV road user tax based on kilometres travelled, introduced by the Victorian state government in July 2021. Don’t celebrate too quickly, the decision is likely to be challenged by a consortium of Australian states and territories that have signalled that they intend to bring in a road user tax at some point in the future — either based on a date or on penetration rates of EVs. Chris Minns, the New South Wales premier, said the ruling was a “surprise,” and Tim Pallas, Victoria’s treasurer, described it as “very contentious.”

The case dates back to September 2021, when private citizens launched the High Court challenge to Victoria’s Road User Tax (RUT). Initially an unwinnable David and Goliath struggle, as other states and territories joined with Victoria to defend the tax, the federal government joined the case on the side of the plaintiffs in July. EV Facebook pages were awash with comments about the issue and offers of support from fellow EVers. It was also awash with comments criticising EV drivers as virtue-signalling free loaders. “How dare you drive your Teslas on the roads that our gas guzzling mini trucks have paid for!” Oh, the righteous indignation!

We even had a discussion at our monthly Coffee, Cake and EVs morning. Many were against any RUT, some were willing to concede it was necessary, and others didn’t really care.

The Guardian describes Australia’s taxation system as having “vertical fiscal imbalance,” where most of the taxation revenue is raised by the federal government but then granted to the states for their expenditure. At the time of the tax imposition, a Victorian government spokesperson said: “The road-user charge for zero and low-emission vehicles ensures a fair and sustainable revenue base to fund investments in the road network.”

Did the High Court overrule the state of Victoria because of the virtue of driving EVs or because they are better for human and climate health? No altruism here. It was overruled on a point of law. The Victorian EV road user tax was deemed an excise and as such can only be levied by the federal government, not by individual states. My expectation is that the Feds will now see this as a money-making opportunity and bring in their own road user tax. Dingos fighting over a sheep! Or perhaps the states will find another way to raise money from EV owners — like increasing registration payments. Watch this space!

My initial reaction to the EV road user tax was that at 2.5 cents per km (then increased to 2.8¢/km), it was actually a reasonable price to pay. It still meant that the EV driver was paying much less to drive their car than those stuck on fossil fuels. Australians pay a lot of tax – it is estimated that over 30% of the cost of petrol and diesel is tax. I drive about 30,000 km per year, which would consume 3000 L of petrol if I was still driving my old Sonata V6. The money spent on petrol would be AU$6,000. So, I would be paying approximately $2,000 in tax to state and federal governments. At 2.8¢ per km, the road user tax would be $840 per year. Therefore, driving electric would still save me money under a modest road user tax. Of course, there are those who expect that the rate will rise over time. It had already gone from 2.5¢/km to 2.8¢/km. Doesn’t it always?

“The law charges electric and hydrogen vehicle owners 2.8c for each kilometre they travel during the year, and plug-in hybrid vehicle owners 2.3c for each kilometre. Hybrid vehicles were exempt. The tax was designed to recoup lost revenue from EV drivers, who do not pay the petrol excise,” The Guardian summarizes. Strangely, no road user tax was applied to HEVs — even though they are highly fuel efficient and make up a great deal of the road-using population — if they are 30% more efficient, shouldn’t they pay something towards the loss of fuel excise?

Is a road user tax for EVs fair? Should all drivers contribute to the upkeep of the roads? Yes, of course they should. However, some would point out that driving EVs improves everyone’s health and thus saves on healthcare costs — in time, these should balance out the lack of fossil fuel tax paid by EV drivers. Some say that EVs are heavier and do more damage to the roads. This issue of weight was dealt with in a recent CleanTechnica article about multi-story parking garages’ capacity to handle EVs. EVs are no heavier than some of the SUVs and tradie utes currently powered by diesel and petrol. Others point out that road maintenance costs are covered by many sources. It is actually quite complicated. For example, local town councils fund the cost of local road maintenance using ratepayers’ contributions. State governments also contribute to this.

Will a road user tax stop people buying EVs? Perhaps. An Australia Institute poll of South Australian drivers in 2021, before that state introduced its RUT, showed that “a strong majority of South Australians agree that EVs are good for the environment and support government efforts to increase the uptake of EVs but would be less likely to switch to an EV if the RUC [road user charge] is introduced.” South Australia abolished its RUT in February of this year.

Although it appears that sales of EVs in Victoria continued to increase after the introduction of the RUT, there were a few standout consequences. Some on Facebook declared that they would not drive their EVs as a protest against the tax (rather self-defeating in my view). Others declined to submit their odometer readings to the government and had their car registrations cancelled — 240 vehicles, I hear. Will those who paid the tax get their money back? Highly unlikely.

Australia has moved from a penetration rate of 0.8% (2020) to 2.4% (2021) to 4% (2022), and this year is averaging 8%. Last month saw the rate exceed 10% for the month. All the chopping and changing with incentives, the FUD, and the taxes have not slowed the rEVolution. It is to be expected that governments will have to adjust their taxation processes in response.

I believe that a road user tax is inevitable. Even the lawyer challenging the road tax said: “It’s not time to be taxing EVs yet.” Emphasis mine. I hope it will be modest and also equitable. It would have been better if there had been headlines about the launch of the BYD Seal or the proposed date for the Cyberparty! Out of the seven judges on the High Court, only a slim majority (4 – 3) upheld the decision to abolish Victoria’s RUT. Expect a challenge.

 


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