Stamp duty changes could derail the ambitious targets of Australia’s strongest EV market

Transport is the largest source of greenhouse gas emissions in the ACT by a country mile. To help address this, the ACT Government has a target of 80 to 90 percent of new vehicle sales being zero emissions models by 2030.

The ACT is unique in Australia for having a stamp duty scheme since 2008 that differentiates on both emissions and price to encourage the purchase of low and zero emissions vehicles. Vehicles are classed from category AAA for zero emissions to category D for the highest emissions.

From September 1, zero emissions vehicles are no longer exempt from stamp duty. The Australian Electric Vehicle Association (AEVA) accepts that all car buyers should contribute to ACT revenue and that buyers of more expensive cars should make larger contributions.

It might sound impressive that roughly one in five new cars sold in Canberra is an EV, but it has been at this level for two and a half years. The ACT transition to EVs is stuck in first gear.

At various times since 2008, the stamp duty rates have ranged from 1% for the lowest emissions vehicles to 6% for the highest, then 0% to 4%, and now 2.5% to 4.5%.

In a 2016 critique by taxation academic Dr Anna Mortimer, the 1% to 6% range was “found to be ineffective to shift consumers’ preference to fuel efficient vehicles”.

Now the price signal is even weaker, providing only a 2% difference between the best and the worst polluting options. A price signal is urgently needed to prevent new heavily polluting vehicles entering the fleet and remaining there into the 2040s.

Differential duty schemes are working better overseas where they provide strong price signals to encourage buyers to choose less polluting vehicles. Sticker price has a much stronger effect on buyers than future costs such as fuel and maintenance.

That’s basic economics. Most European countries include CO2 emissions in the calculation of vehicle purchase taxes, and some use especially high taxes to target the most polluting models.

The Australian EV market is maturing. New EV prices have fallen below $30,000, the range of models has broadened, and the second-hand market is growing. In an ACT Budget submission, AEVA has proposed that vehicle duty be adjusted to send stronger price sigals to buyers to purchase a vehicle in a lower emissions category for both new and used vehicles.

At present, the duty rates for the highest emitting new vehicles are less than twice those for zero emissions vehicles and there is no differentiation between category B, C or D vehicles once second-hand. This has the perverse effect of taxing some lower emissions second-hand cars more than similarly valued but higher emitting new ones.

By increasing the duty rates on the most polluting vehicles, cheaper, high emissions vehicles will attract more stamp duty than they do currently. There are low emissions and zero emissions vehicles in the second-hand market now and their prices will continue falling.

The intention is to encourage all buyers to purchase lower emissions vehicles, regardless of price. Increasing stamp duty rates raises potential equity concerns. The ACT Government could extend stamp duty concessions to concession card holders, as it does for vehicle registration.

AEVA’s highest proposed duty rate for a luxury, high emissions vehicle is comparable to Spain, which has the lowest stamp duty based on CO2 emissions and vehicle value in Europe.

Spare a thought for the Irish where 41% duty is applied to the full value of a highly emitting vehicle or the Dutch who would pay around A$50,000 in stamp duty to purchase a high emissions vehicle, new or used, regardless of its price!

The ACT differential stamp duty scheme has been in place for almost two decades and is not achieving its aims. It needs strengthening. The international experience is that stronger price signals would move us considerably in the right direction.

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