Victoria’s proposed electric vehicle road user tax has been derided as a senseless piece of policy that will only put more hurdles in the way of boosting the local EV market, but one think tank that supports the tax has offered a plausible explanation for why the Andrews government is acting now.
In short, there is a window of opportunity right now to lock in a new state-based tax when the federal government is not really paying attention, and the EV lobby is too small to put up much of a fight.
Adrian Dwyer, chief executive of Infrastructure Partnerships Australia, didn’t quite put it in those terms. He referred, instead, to the opportunity to legislate at the “thin end of the technology wedge”.
He says he is coming at this from the point of view of efficiency and equity. The current system of taxing road use through the federally-collected fuel excise, he argues, is “inefficient” and “unfair”. A distance-based, state-collected tax, meanwhile, would directly charge for road use, and the money would go to the body responsible for building and maintaining road: state governments.
He says policy wonks and economists have been arguing for this approach for years, but their arguments have fallen on deaf ears.
“We currently have fuel excise, which goes to consolidated revenue at the federal level,” he said during a panel discussion hosted by the Institute of Transport Engineers last week.
“That is distributed to some extent back to the states through contributions from the federal government, either in broad contribution to the states or specific investments on behalf of Commonwealth taxpayer into a state based project. It has very little linkage between usage and consumption. And it’s a pretty poor system, it’s unsustainable, it’s inefficient, it’s unfair,” he said.
He said supporters of a distance-based road tax had been “banging our head against a brick wall for the last 20 years trying to get a politician to step up and do that”.
“They all said no, because fuel excise is quite good. If you’re at the federal government level, you collect it from a small number of fuel wholesalers. It’s a hidden tax, people don’t know they’re paying it.”
He said now was a chance to “get in at the thin end of a technology wedge” to “put in place … a better system that in 20 years time when we don’t call them electric vehicles or EVs, we’ll just call them cars, because they’re all electric.”
He added he supported up front support to incentivise EV uptake alongside the new EV tax. He also added that because the distance-based tax would be collected by states rather than the federal government, it would incentivise state governments to promote EV uptake.
“If you imagine a future where we have a sticker price incentive that encourages the purchase of electric vehicle alongside a modest distance-based charge, that is equal and equivalent to fuel excise for a similar vehicle,” he said.
“With that being levied at the state level, what you do is tie the state government to wanting to incentivize electric vehicle kilometers travelled over internal combustion engine vehicle kilometers travelsed, because they get a revenue stream from that in a way they don’t get from fuel excise.”
The fact remains, though, that if these taxes get through state parliaments (South Australia and NSW are also planning similar moves), Australia would be just about the only nation in the world with active disincentives to EV uptake.
It will put it in stark contrast to countries and jurisdictions that have successfully promoted EV uptake. In the United Kingdom, for example, as well as being naturally exempt from fuel excise, battery EV owners also pay no annual or upfront vehicle excise duty (aka road tax). ICE vehicles, meanwhile, pay more the higher their emissions.
While it is assumed that eventually, when EVs dominate the roads, some sort of new tax will have to be introduced, the UK government has taken the clear view that the transition to EVs must be supported by strong, coherent incentives and tax breaks. That’s a strategy echoed not just in the EU, but also in China, where aggressive tax breaks are putting China on a faster road to electrification than many expected just a few months ago.
Also speaking at the Institute of Transport Engineers event last week, Tim Washington co-founder of JET Charge and chair of the Electric Vehicle Council, rejected Dwyer’s arguments.
“I think the biggest problem here is that we’re conflating a broader road user charged discussion with what’s actually being proposed by various state governments at the moment, which is not a broader reform around road user charge. Rather, it is a tax on electric vehicles,” he said.
“And I think that’s where the EV Council is coming from, to say, we’ve never had a problem working with the broader community on a road user charge for all vehicles. But what’s being proposed today is not that. It is a road user charge only for electric vehicles. And whilst I think the structural elements in Australia don’t prohibit the sale of electric vehicles, and that the barriers are not as high as some would say, that doesn’t contemplate an active disincentive to purchase electric vehicles.”
James Fernyhough is a reporter at RenewEconomy and The Driven. He has worked at The Australian Financial Review and the Financial Times, and is interested in all things related to climate change and the transition to a low-carbon economy.