The federal Labor government is to slowly cap and then reduce the scale of its electric car discount – the Fringe Benefit Tax exemption- but has decided that nothing will change for the next two years.
In a pre-budget announcement released by federal treasurer Jim Chalmers, Labor says the current FBT exemption will continue in full until March 31, 2027 – despite intense lobbying from some quarters for it to be removed entirely.
From April 1, 2027, the full FBT discount will only apply only for EVs costing $75,000 or less, and EVs costing more than this and below the luxury tax threshhold will be able to access only a 25 per cent FBT exemption.
Then, in the third phase, from April 1, 2029, all EVs below the luxury car tax threshold will receive only the 25 per cent discount on payable FBT.
The decision has been welcome by the Electric Vehicle Council. “This is a good outcome,” EVC policy head Aman told The Driven.
“The majority of EVs will still be available for full discount up till 2029, and people looking at EVs now will continue to see great value in what’s on offer.”
The decision by the federal government follows a report into the Electric Car Discount that began last December, and pretty much follows its recommendation to adjust the eligibility thresholds and phase down the discount over time.
It noted that the ECD had cost $2.0 billion over the first 3 years from 2022–23 to 2024–25, and is forecast to cost $1.35 billion in 2025–26 and is expected to grow to $2.8 billion in 2028–29, based on the current trajectory and policy settings.
The report notes that the ECD has other costs, including compliance costs for car buyers, employers, importers, and intermediaries; economic costs resulting from market distortions; and additional revenue costs from the import tariff exemption and flow-on impacts on GST and fuel excise collections.
But the government argued that it had been effective, and along with New Vehicle Efficiency Standards has resulted in a dramatic increase in the availability of affordable EV models, with a tripling of EV models on offer, and the number of EV models prices under $45,000 rising to eight today from zero four years ago.
“The strongest uptake of our EV tax cut is occurring primarily outside the inner cities – with Gosford, Kellyville, Werribee and Toowoomba among the highest uptakes,” the government said in a statement.
“The new rules will encourage manufacturers to offer more affordable and cheaper to run EVs in the Australian market,” the government said in a statement.
“We will continue to provide support for families who choose to switch to EVs as we transition to a permanent 25 per cent discount on FBT for these cars.”
It said existing leases won’t be impacted by the changes.
Australia has experienced a boost in EV interest, but even with a record share of 14.5 per cent of new car sales the country remains well behind other western economies in the uptake of EVs.
“It is estimated that the ECD resulted in around 64,000 additional battery EV (BEV) sales over the first 3 years to December 2025, and 78,000 additional EV sales including plug-in hybrid electric vehicles (PHEVs),” the report says.
“There is significant uncertainty around this estimate, particularly in relation to PHEVs.”
Interestingly, the report also suggested tweaking the discount to take into account vehicle-to-grid capabilities, although it noted that it was not clear to what extent the market was ready for this.
“Nonetheless, there are benefits in sending a clear signal to the market about the intended integration of this functionality to incentivise manufacturers to accelerate testing, warranty processes and other innovations so that V2G can be quickly and smoothly adopted at scale in coming years,” there report says.
There was no mention of V2G in the government’s release.
See The Driven’s detailed EV sales data here: Australian electric vehicle sales by month in 2026; by model and by brand.
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Giles Parkinson is founder and editor of The Driven, and also edits and founded the Renew Economy and One Step Off The Grid web sites. He has been a journalist for nearly 40 years, is a former business and deputy editor of the Australian Financial Review, and owns a Tesla Model 3.