Australian state governments were warned a road user tax on clean cars introduced without other support for the technology could discourage its uptake and impede greenhouse gas cuts. The advice was received before South Australia and Victoria announced plans to introduce a charge on driving electric vehicles (EVs).
A leaked report to the Board of Treasurers – a states and territories forum – shows it jointly commissioned advice on how to best introduce road-user charging on zero and low-emissions vehicles after agreeing to “high-level principles” earlier this year.
Written by the Victorian Treasury, the report argued a new form of charge was warranted as the rise of cleaner cars would reduce revenue from fuel excise paid on petrol and diesel, which it described as a “proxy charge” on road use.
Options considered in the paper include the model proposed by the South Australian government: a road user tax without new incentives to make EVs more attractive.
It found this approach would “maximise revenue recovery” but was likely to discourage EV uptake, slow emissions cuts and lead to strong opposition from the industry and environmentalists. It had the potential to skew the market towards fuel-efficient fossil fuel cars, it said.
The Victorian Labor government plans a 2.5c/km road user tax for EVs and 2c/km for hybrid vehicles, and offers a $100 annual discount on registration. The paper suggested this approach offering a minor discount on registration may not increase the likelihood people would buy EVs.
A separate analysis by Dr Jake Whitehead from the University of Queensland found Victoria’s policy could lead to EVs having a 25% lower share of new sales in 2050 than otherwise expected.
New South Wales has also publicly floated an EV road user tax, with the treasurer Dominic Perrottet having flagged taking a plan to cabinet next year.
Richie Merzian, director of the climate and energy program at the Australia Institute, accused the states of developing the EV policy in secret without an opportunity for public feedback. He said it made little sense given they had been warned they would likely face strong public opposition and discourage sales unless other concessions were introduced, and as all states had backed cutting greenhouse gases to net zero by 2050.
National emissions from transport had increased 17% since 2005 before being briefly hit by the Covid-19 shutdown.
“Governments need to hit pause on this half-baked policy proposal and come back after undertaking proper consultation with industry representatives and the community,” Merzian said. “There is an argument to be made for a broad and comprehensive charge that accounts for the pollution being emitted by every vehicle on the road, but simply putting a new tax on EVs would be a backwards step.”
Australia trails nearly all comparable countries on EV uptake. Only 0.6% of new cars sold are electric, compared with between 5% and 8% in other markets and about 60% in Norway.
Federal and state governments are supporting plug-in charging infrastructure across much of the country, but mostly have relatively few policies to drive greater uptake of EVs, which are expected to reach price parity with petrol cars within about five years. Britain and Japan have announced they will ban the sale of new fossil fuel cars in 2030 and 2035 respectively, while the US offers a capped US$7,500 tax rebate on EV purchases.
In Australia, a national EV strategy promised by the Morrison government February last year has not been released, and has now been rolled into a broader “future fuels” transport package, with a discussed paper expected this month.
The exception locally is the Australian Capital Territory Labor-Greens government, which promises interest-free loans of up to $15,000 for zero-emissions cars and free registration for two years for new EV purchases.
A Victorian government spokesperson said the state “proudly took an active role” in advocating in the board of treasurers for a road-user charging system “that makes sure all motorists pay their fair share”.
“We’re continuing to back the take-up of electric vehicles as we move closer to net zero emissions by 2050, by providing confidence to new motorists with a massive boost to our charging network,” the spokesperson said.
“The government has set a legislated target of net zero emissions by 2050 and we will be announcing a range of policies to deliver on that target.”
A South Australian government spokesperson did not directly respond when asked why the government was proposing a model that the report said could impede EV sales given it wanted the technology to develop.
The spokesperson said the state was spending more than $13m on a fast-charging network as part of an $18m EV action plan, and would introduce road-user charge legislation to parliament next year. “It is important that all road users contribute fairly to the cost of safe roads, especially as the SA government’s plans will accelerate the uptake of electric vehicles,” they said.
“This includes transitioning the state’s $80m per annum fleet, within its existing budget, to electric vehicles to make affordable used models more accessible to South Australian households.”
While the report emphasises the need to replace fuel excise revenue, which is collected by the federal government, critics of introducing EV road-use charging before the technology gains a foothold in the market say in reality fuel excise is not specifically dedicated to road funding, and could be replaced in other ways.
The states believe introducing a road user charge will be easier now, when the EV market is small and many owners are comparatively wealthy. It would become more politically challenging if left until the technology makes up a significant share of the new car market.
Merzian said it was wrong-headed to think of an EV charge as a tax on the rich, as some politicians had suggested. “You are actually punching down on second-hand drivers buying cars under $30,000. That’s going to be the market,” he said.
