The benefits of electric cars are underestimated as multiple Australian state governments, afraid of losing tax revenue, are thinking about creating specific taxes for electric cars. Jake Whitehead from the University of Queensland shares his take on the subject and explains why EV specific taxes might be a bad idea.

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By Jake Whitehead - Research Fellow, The University of Queensland

Image Credit: Moritz Kindler via Unsplash - HDR tune by Universal-Sci

In recent years, false claims have circulated that electric vehicles are “breaking our roads” because they don’t use fuel and so their drivers don’t pay fuel excise.

Heeding such concerns, both the Victorian and New South Wales governments are reportedly considering a new tax for electric vehicles. It follows a report by Infrastructure Partnerships Australia which recommended a per-kilometre tax for electric vehicles.

But this shortsighted approach risks killing the golden goose of our transport system. Such a tax would limit the economic, health and environmental benefits promised by electric vehicles which, together, far exceed any loss in fuel excise.

Instead, Australia needs a mature public discussion about holistic road tax reform to find a fair and sensible way forward.

Electric vehicle owners do not incur petrol costs - Image Credit: Universal-Sci - CC BY 4.0

The problem is structural

Fuel excise is built into petrol and diesel prices, charged at around 40 cents per litre. For more than 20 years – well before the introduction of electric vehicles – net fuel tax revenue has been declining, largely due to improvements in vehicle efficiency, meaning engines use less fuel.

But if we take into account fuel tax credits – subsidies for fuel used in machinery, heavy vehicles and light vehicles on private roads – gross fuel tax revenue has actually increased in recent years.

This suggests the tax suffers from a structural problem. Simply applying a new tax to electric vehicles won’t fix it.

It’s also worth remembering that while electric vehicle owners don’t pay fuel excise, they generally pay more in purchase taxes such as GST, because their vehicles tend to be more expensive to buy.

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Benefits of electric vehicles

Electric vehicles help reduce our dependency on foreign oil and save owners over 70% in fuel costs by swapping petrol for electricity. Electric vehicles also lead to cleaner air, resulting in significant savings in health costs. They create new local jobs in mining and local energy, and importantly, are key to meeting global climate change targets.

Comparison of annual road accident fatalities vs premature deaths due to vehicle emissions in NSW. - Image Credit: Asthma Australia/Electric Vehicle Council.

An electric vehicle tax would increase costs for motorists, curb sales and may even encourage the purchase of cheap, fuel-efficient vehicles, driving fuel tax revenue down even further.

Congestion is the bigger problem

The proposed taxes will do nothing to tackle the biggest problem with Australia’s transport system: road congestion.

Sweden, where I lived for several years, offers a possible way forward. In 2006, the city of Stockholm introduced a congestion pricing scheme which charged vehicles for driving in and out of the city centre at peak times.

The scheme meant normal weekday traffic was considerably lighter. Low-emission vehicles were also temporarily exempted from the charge to encourage sales.

Unfortunately, despite the proven benefits, Australia is unlikely to introduce such a scheme due to a lack of public and political support.

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Towards a sustainable road tax

The transport sector faces massive disruption in the near future, from electrified vehicles, automated vehicles, and the shift to shared vehicles.

Focusing solely on electric vehicles misses the broader point: we need to proactively prepare for the transition to a new transport system. This means ditching our unfair, outdated and unsustainable road tax model while reducing congestion.

Instead of simply penalising electric vehicle owners, I suggest an approach where electric vehicle owners could voluntarily opt-in to a new road tax model. Here’s how it would work:

the tax would include a low per-kilometre fee for all travel, and an additional fee for inner-city travel during peak weekday periods
in exchange for opting in, owners would be exempted from the old road tax system, that is: vehicle registration, stamp duty, import tax, luxury car tax, fringe benefits tax, fuel excise, and road tolls.
to ensure a true financial incentive to opt-in to the new road tax model, a significant discount would initially apply. This discount would gradually be phased out as electric vehicle uptake increases, as has occurred with similar overseas schemes
the new road tax model could easily be extended in the future to apply to automated vehicles, and to more accurately reflect the burden transport poses in terms of congestion and pollution.

This is just one example of a balanced approach that would encourage both local adoption of electric vehicles, and public support for fairer road taxes.

Such holistic reform would enable a future transport system with less road congestion, quicker travel times, cleaner air, lower costs and a sustainable road revenue stream.

Let’s be smart and not miss this golden opportunity.

Source: The Conversation