Last week, the High Court struck down the Victorian government’s tax on road use for electric vehicles (EVs). The result was greeted warmly by the Victorian Greens and progressive groups, such as the Australia Institute, as a “huge win for the climate”.
Their logic appears simple — the transport sector is Australia’s third-largest and fastest-growing source of emissions. Private cars contribute about 60% of the sector’s emissions and more than 10% of Australia’s total emissions. EVs could drive this down, but they made up just 8.4% of all new cars sold in the first half of 2023 — that’s a record high, but well short of making a serious difference.
Opponents worry that taxes like Victoria’s, or muted copies in New South Wales and Western Australia, undermine EVs’ spread. As economist John Quiggin wrote in The Conversation (republished by Crikey), “A tax specific to EVs could only slow their adoption, at a time when early adopters need to be encouraged.”
But the sinking of Victoria’s tax isn’t the straightforward progressive win it seems. Indeed, it opens a legal can of worms that will do far more harm than good. Those embracing it as a cause célèbre are short-sighted.
The EV tax was fairer than it seemed
Maintaining roads and other car-related infrastructure is expensive. Currently, petrol and diesel-powered vehicle drivers partially cover this cost by paying a fuel excise. Electric vehicle owners don’t.
Quiggin counters that non-EV drivers “don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs”. So EV drivers deserve to be charged less.
Sure, but Victoria’s EV tax was already concessional. Victorian EV drivers paid 2.8 cents for each kilometre they travelled, while non-EV drivers’ excise works out to approximately 5 cents per kilometre. Add the $100 registration discount for EVs in Victoria and their drivers are clearly paying much less tax than others.
Arguing that such a comparatively small sum will deter take-up of EVs, when the cheapest Australian EV costs around $45,000, is spurious. Anyone who can fork out half the average full-time yearly salary for a car isn’t going to be deterred by an extra few hundred dollars per year.
The factor suppressing EV take-up is clearly the upfront cost, which governments can more effectively help with via direct subsidies, and imposing fuel efficiency standards on manufacturers, which encourage them to invest more heavily in mass-market EVs. The Albanese government is working on the latter, but how stringent their policy will be remains to be seen. They could also help build more charging stations, which Australia currently lacks.
But if Victoria’s tax is relatively small, why bother? Because per-kilometre road charges are much better at tackling congestion.
Once you’ve bought a car, paid the rego and filled up, the marginal cost of driving each additional kilometre isn’t high, and you want to make use of your investment. This is partly why Australians drive much more than they need to.
Hence our congestion problem. Infrastructure Australia estimated in 2016 that it cost us around $19 billion per year. Electric vehicles could worsen this — their marginal driving cost is even lower, so more people may drive instead of taking public or active transport. This could lead to more demand on the electricity grid, more tyre pollution and more deaths — cars are the leading cause of death for Australian children. While EVs are surely better than standard cars, all cars have their pitfalls.
Road user charges can help by deterring unnecessary trips. Down the track, they could also be varied for peak and off-peak times, and for people with greater or fewer alternative transport options, cutting regional drivers some slack and penalising inner-city drivers who could easily hop on a train or bus.
The problem? Introducing new car taxes is politically unpopular. But what if we could establish this norm among a small category of vehicles set to take over the market in years to come, thus spreading a better tax regime by stealth? Victorian Treasurer Tim Pallas had made a canny maneuver, until it was thwarted.
The case’s legal precedent could be ruinous
In Ursula K. Le Guin’s classic sci-fi novel The Lathe of Heaven, the protagonist discovers his dreams come true. Thus he conjures a dream that humans stop warring with one another. But when he wakes up, he finds humans have only banded together because they need to fight an imminent alien invasion.
Even if you dislike Victoria’s EV tax, the legal effort to undermine it is akin to Le Guin’s fable — it has achieved its outcome only by opening up dangerous new possibilities.
The plaintiffs succeeded in a legal argument regarding what constitutes an “excise”, which, per the constitution, only the federal government can levy. In finding Victoria’s EV tax was one, the court expanded its definition of “excise” to potentially encompass a broad array of state taxes, which could now be similarly struck down.
The Victorian government’s lawyers have suggested vehicle registration charges, waste disposal levies, gaming machine levies and other betting taxes could be first on the chopping block. These reap Spring Street billions of dollars per year, let alone the amounts raised in other states, which are now worriedly scrambling.
There is nothing progressive about neutering the taxation power of state governments, which directly provide the bulk of Australia’s social infrastructure like schools, hospitals and transport networks. Amid a post-COVID revenue shortage and pressing social needs, state governments should be able to tax as much as their voters will support.
Reckless lawyers have thrown a major spanner in the works of Australia’s welfare state, all to avoid an exceedingly modest charge on affluent Tesla owners — and for some reason, the green left are cheering them on.
Another commentator who can only envisage EV users as a) metro-based and b) ‘affluent’. I live in rural Victoria and bought an EV last year at great expense because I wanted to do my bit to reduce fossil fuel consumption/emissions, like a number of other people in my community. This EV Road User Charge is a massive impost on rural and regional drivers – my RUC was $970 this year because I drove nearly 40,000km. That’s not a ‘modest’ charge. I was given 10 days to pay it.
Most of us up here are working in middle income jobs, driving long distances because there is no/limited public transport and frankly most of the EV owners I know are considering selling their EV and going back to petrol/diesel. The lack of EV charging infrastructure is also a huge factor.
This policy was ill-conceived, clunky and poorly implemented, adversely impacting regional Victorians to a far greater degree than metro-based people. Let’s look at how we transport freight first before we come after EV users.
The savings on fuel must surely well and truly cover the excise.
Sorry Nadia, your argument is full of holes. If you still drove an ICE vehicle you could be paying $2.20+ for standard fuel including nearly twice as much in excise as for your EV, and forgo the EV rego discount. And you wouldn’t have a quiet, pollution free drive and maybe higher level safety equipment. Pallas was ahead of pack, but the tax goes to general revenue and it pays for roads for EV drivers and everyone else. You are right that it was poorly implemented and administered, but no doubt the processwould have been revised with GPS tracking etc to validate use in Victoria etc.
A GPS tracker in every vehicle is the other thing the kind of people who want this are chomping at the bit to implement, and it should be fought at every turn.
Here we go again … the old furphy that fuel excise is hypothecated to road maintenance!
It isn’t! Hasn’t been for years, but journalists don’t seem to grasp the facts!
Fact 1 … Fuel excise is collected by the Federal Government. It is a tax on the product known as “petroleum derivative” products.
Fact 2 … Fuel excise goes direct into “consolidated revenue. It is NOT hypothecated for road building or maintenance!
Fact 3 … State governments are not permitted by the constitution to levy taxes.
Fact 4 … A state “levy” that does not confine itself to activities within the jurisdiction, is manifestly unfair, so the “per km” charge on Victorian EVs, levied regardless of whether these km were driven in Victoria or indeed anywhere else in the country was unfairly targetted.
Refer https://en.wikipedia.org/wiki/Fuel_taxes_in_Australia for some detail.
I agree, fuel excise being linked to.road use is not correct. But it doesn’t stop all those lovely exemptions the govt affords to miners, fishermen, farmers and so on. Interesting to see if this court ruling expands to scrapping these exemptions as an extension of the reasoning for this ruling. You don’t see too many farmers’ wives filling up with diesel at the bowser!
I won’t comment much on the judgement, other than to note that from a layman’s read of the judgement summary, a generic RUC against all vehicles would not have fallen afoul of the High Court, and the concern about it destroying the welfare state feels very overblown given how different the other taxes and charges being talked about in that context are.
Sure, they’re an easy target. That’s why it’s started there.
But you need to look down the track twenty years when most cars are EVs or PHEVs.
A road usage charge is fundamentally unfair and regressive. It punishes people who don’t live in areas well-served by public transport, for whom public transport is a poor solution (eg: families with kids) and especially those living in regional areas who have to drive long distances simply to live.
At least that’s assuming you want your RUC to actually seriously change behaviour. Because if it’s high enough to convince the wealthy people in the inner suburbs to drive less, it’s going to be absolutely ruinous for everyone else.
Generally, the people driving the most are going to be those least able to substitute their cars for something else, and those most able to substitute are in the highest socio-economic groups. This applies regardless of whether you’re talking about distance, or time of day.
It’s a bad, unfair and regressive tax any way you cut it. Congestion charging ain’t a whole lot better.
Maintaining roads is indeed expensive, but nearly all damage is caused by heavy vehicles, not passenger vehicles. Further, the benefits of roads are substantial and extensive, even for the small minority of people who do not own cars, and the even smaller minority of people who never use passenger vehicles at all.
I would argue it makes little sense to even try and quarantine road costs into some sort of ostensible user-pays system even in theory, and that’s before going into the ideological issues with it (eg: few would argue we should do the same with public education and healthcare, and especially not based on how “inconveniently” they consume those services).
If you want to get cars out of CBDs, then just ban them or put up toll cordons. If you want commuters to prefer public transport then make it so frequent they don’t have to check when it arrives and so comprehensive they can get nearly anywhere with it easily. If you want commuters to use bikes, then build a lot of bikeways.
Nobody likes sitting in bumper to bumper traffic for hours on end. They will use better options if they exist. But if they don’t exist, you’re mostly punishing normal folks just trying to go about their lives.
Thank you for pointing out the fundamentally unfair and regressive nature of RUCs. It is indisputable that road damage is mostly caused by heavy vehicles rather than passenger cars and it is also indisputable that poorer people living in outer suburbs with little effective public transport are those most adversely affected by RUCs.
Like a lot of EV owners I know, it was my first new car and by far the most expensive. I bought it for environmental reasons. I saved many years for it.
The idea that EV owners are well off ignores the fact that Hiluxes, Prados, Land Cruisers we commonly see on our streets are more expensive than many EVs. Most are not used for their specialise purpose. They are more dangerous than all EVs sold in the Australian market. They pollute terribly.
Fair road user chargers are fine. Apply them to all vehicles. The Federal Government can knock a few cents off the fuel excise for that component they say is used for roads and put it into a universal use payment proportionally based on weight and distance.
If trucks cause disproportionate damage, make them pay, pass it on to the consumer. Perhaps we will see a renaissance in rail and coastal shipping.
Knock the relevant amount off fuel excise for environmental pollution and then add it back as a specific charge on the fuel – encouraging more fuel efficient cars.
The lack of public transport is an issue but there is also the issue of laziness. The number of people who don’t cycle / scooter the few kms to the train station but instead drive either to the train station or all the way to work is very high. Kids the excuse? What explains other countries who manage?
The “tyre pollution” reference is a bit of a dog whistle (whether the author is aware of it or not) to some of the anti EV stuff I see.
We want cars. But at least half as many and we want them all zero pollution. We want to prioritise pedestrian and cyclist safety. If anyone feels they are special case and deserve the privilege to drive then they should pay fairly for the privilege of using the public space.
Some adjustments may always be necessary for the exceptional circumstance – but the exception is far too often claimed the rule.
Well argued.
What a load of garbage.
You want to pay for the roads then adjust the vehicle weight levy component of registration to truly represent the wear and tear on our roads by Australia’s vehicle fleet. Get Lindsey Fox to pay a proper amount for the damage he does to our roads. We may even see a move of freight back off our roads and onto the trains.. where it belongs… win win. Electric vehicles are also heavy. This should satisfy your lust to punish “wealthy” EV owners.