So much has already been said and written about Victoria’s new electric vehicle tax, would it be worth adding another two cents worth to the conversation? It has already caused so much divisiveness between road users: those who drive electric or plug in hybrids vehicles and those who don’t. Yet still there was the feeling that another perspective should be put to the issue. Many will claim the tax is a blatant grab for cash by the government, others will claim it’s for road maintenance and infrastructure projects. Have you ever considered that it could be both? Additionally, have you ever considered that this actually is a good sign for the future of electric vehicles in this country?
This article is in light of the recent challenge to the tax in the high court by Equity Generation Lawyers acting on behalf of their clients, EV owners Kathleen Davies and Chris Vanderstock. The objective is to argue that the new levy is not legal on a technical level as the state government of Victoria does not hold the power under the constitution to collect such a tax. Only time will tell whether or not this challenge is successful and I wish all parties the best of luck.
Initially, this post may not sit well with EV owners, but really you should be thankful that such a tax exists. The reasons for why will become clearer by the end of the article.
A little known piece of history (at least here in Australia) is about a tax introduced in Britain at the end of the 17th century. Instead of the hugely unpopular income tax, a duty was charged to homeowners based on the number of windows in one’s house as means of collecting capital. The window tax was used as a sliding scaling means to determine taxable income, the idea being the more money a homeowner had, the bigger the house and the bigger the house the more windows it would have. This levy was collected for over 150 years, up until the introduction of what would become the income tax system of today.
Fast forward to the present year of 2021, and there has been somewhat of a reincarnation of this ye olde window tax, albeit slightly tweaked for the present day.
Governments being governments are always looking for a source of untapped revenue to help with cash flow and budgets. One of those sources is the up-and-coming technological trend of vehicles moving away from conventional internal combustion engines (ICE) to electric drive trains.
Up until this point, electric vehicles (EVs) have been pretty much immune from the usual heavy burden of regular taxation. In fact, governments all around the world have been falling over themselves trying to get people driving with battery power as soon as possible, many offering generous incentives to get more people to make the switch. However, there is now a notable exception to this that has bucked the trend.
The ZLEV Road User Charge
Australia’s second most populated state, Victoria, has gone against the grain of most other civilised nations and/or states and started charging for the privilege of driving either an electric car or plug-in hybrid.
The Zero and Low Emission Vehicle (ZLEV) Distance-based Charge Bill of 2021 was passed by both houses of the Victorian parliament on the 25th May 2021, and came into effect from the 1st of July 2021. The act now charges EVs and other low emission vehicles a tax, per kilometre driven, paid annually to the state Government as part of annual vehicle registration.
This road-user charge effects fully electric vehicles (EV), such as Teslas, along with plug in hybrids (PHEV), such as the BMW i3, stinging those owners with a 2.5c/km and 2c/km road usage charge respectively. In a double blow for PHEV, they also lose the $100 concession on annual vehicle registration. Conventional hybrid vehicles, like Toyota’s Prius, also lose the $100 registration concession but won’t incur the same kilometre-based tax as their plug-in counterparts. Not yet anyway.
Whatever honeymoon period the Victorian Government gave EVs is definitely over, and now it’s time to pay.
Whats the issue?
Unless you’re a CPA nobody likes talking tax, however it must be mentioned in order to better understand the situation. To fully appreciate this conflict, you need to have heard about the Federal Government’s fuel excise.
The fuel excise, introduced in 1983, is charged on refined petrochemicals such as petrol and diesel at a rate of approximately 43c for every litre. The levy is charged to the oil companies that produce the petrol/diesel, who in turn pass it onto consumers at the bowser. This excise brings in over $12B each year for the Federal Government with almost all revenue collected put back into funding land-based transport projects around the country such as major highways and rail networks.
This is where things start getting a bit messy. As EVs obviously don’t use petrol or diesel, they don’t pay the excise and therefore don’t contribute to funding transport infrastructure around the country. PHEVs still use fuel, but at a greatly reduced amount, hence they don’t contribute as much relative to conventional ICE vehicles either.
What the new tax (ZLEV road user charge) has managed to do is dig up the polarising argument about the roll out and implementation of EVs and other low emission vehicles. On the one hand, some will say that EVs should be encouraged as much as possible through means of fiscal incentives, such as has been the case for many years in many European and Scandinavian countries, with the intention to increase the number of EVs on the roads as soon as possible and help reduce carbon emissions. Opposing that view are those who say that people shouldn’t be immune from contributing financially towards the public roads upon which they drive. Both are valid points of view.
The Impact On Electric Vehicles
A successful tax must do two things: Collect revenue (more on this later) and change people’s spending behaviours. Going back to the example of the 17th century window tax, many home owners would fill in window openings, simply to reduce the amount of windows that a property had in order to reduce the tax payable. It’s literally where the term “daylight robbery” originated.
There is no doubt a tax on EVs will also have an impact on the way people think about and use low emission vehicles.
In the short term, those who may have considered electric will now most likely be seriously reconsidering. Most likely it will put a dent in the value of plug-in hybrids with those vehicles getting the double whammy of tax, that being the road user tax and the fuel excise. As the law is not even a year old, its effects have yet to fully sink in.
Long term, it won’t make any difference. For reasons that will be outlined shortly, EVs are going to be representing the majority of vehicles on the roads in the coming decades, regardless of incentives, rebates or concessions. They will become cheaper or on parity to buy when compared to an ICE equivalent, and even with the kilometre-based user charge will still be cheaper to run on a weekly basis. Once the dust settles, buyers will simply take up this additional cost as part of the everyday running cost of their cars. Motorists do it currently now with the fuel excise, and have been since 1983, what’s so different about this user cost?
Everyone Will Pay, Eventually
It’s inevitable that the days of vehicles powered by combustible liquids will come to an end. And it’s happening sooner than you might think.
Most of the major manufactures have committed to ending production of ICE powered cars around the years 2030 and 2040 with each being at various stages of phasing out. Jaguar by 2025, Ford (Europe) and Volvo by 2030, Volkswagen and even Detroit’s own GM by 2035 have all vowed to end internal combustion engine manufacturing.
Not to mention the banning of manufacturing and sale of ICEs by some European countries such as Germany (2030), Denmark (2035) and the UK (2035).
To say there will be a technology transition is an understatement, with the present day being the beginning of the revolution. It will be slow at first but will gain pace as the purchase prices of EVs eventually reduce. Remember how expensive the first plasma and flat screen TVs were when they first came out? Now they’re sold at Aldi on special buy days. Expect a similar trend to happen with electric vehicles. With economies of scale, production costs will become cheaper, and as more manufacturers go electric (meaning more players in the game) it should result in a more competitive market further driving prices down.
In fact, it is estimated that by 2030 18% of vehicles on Australian roads will be electric and that percentage will continue to increase to 60% by 2040.
As cars with internal combustion engines dwindle in numbers over the coming decades and represent a smaller and smaller percentage of vehicles on the roads, there must be a contingency plan put in place by governments to account for the lack of revenue taken in by the previously mentioned fuel excise.
It’s a Cunning Plan Really
As painful as it is to say this, here is an example of a government looking at the facts and planning for the future, knowing exactly what’s going to happen and doing something about it now. In doing so, helping secure part of its financial future.
There are two major plot points as to why this is such a cunning plan and is great for the state government of Victoria. The first has to do with eligible voters.
As there are so few EVs on the roads currently (approximately 6,000 in Victoria out of the 5 million plus registered vehicles on that state’s roads), it makes perfect sense for a government to implement such an unpopular tax targeting this group.
In fact, Victorian treasure Tim Pallas said it himself in a press release made regarding the ZLEV user tax – “Introducing a road usage charge now, before take-up increases substantially”
Reading between the lines of that statement, the Victorian Government understand that the future of vehicle technology is in low emissions and away from fossil fuel.
Now put yourself in the shoes of a government, 20 years from now, introducing a new tax that will affect over half(an estimated 60% by 2040 as previously mentioned) of all vehicle owners. Do you think that’d be an election winning plan? It’d take a minister with big kahunas to try and pass such a bill that meant three out of every five road users paid hundreds of dollars more each year on their registration.
Hence why it makes perfect sense to do it now, when EV ownership is pathetically low, at less than 1% of vehicles on the road. And with a state election next year (2022), the tax has been implemented at a minimum cost of votes. This is what they call in the business ‘damage limitation’.
The second part of this cunning plan has to do with the money raised itself. What this appears to be is an opportunistic way of circumventing the distribution of federal tax revenue, going straight to the source and taking it for themselves.
What’s meant by this is that a state government is now collecting a tax which has always been collected by the Federal government. This is the main argument that is currently being heard in the high court – the constitutional legality of a state government collecting a federal tax.
It would seem that in a brilliant move the state has jumped the gun on the feds, whom it is no secret have had an aversion towards the idea of EVs being anything more than a craze (they “can’t tow your boat” after all…). Instead those dastardly boffins from Spring Street have decided they don’t want to have to wait for Canberra to dish out their share of the pie, instead the Victorians have decided that they will cut out the baker and make the pie themselves.
What this means is instead of the state government having to go cap in hand to Canberra, the money that would have been collected at the federal level is now landing in state coffers. It won’t impact on the election results for the upcoming vote in 2022, and as EVs will undoubtedly represent a larger and larger percentage of cars on the road this revenue stream will continue to increase year on year.
Not to mention the smoke and mirrors tactic that is created by pitting EV owners against ICE owners over who should pay what.
What a masterpiece of policy for future state governments. Truly a super-villain-esque plan.
That Won’t Happen in My State
Now if you’re reading this from another state in Australia, or even another country for that matter, you’ll probably be thinking “why should this concern me? This is Victoria’s problem, it’s not gonna happen in my state”. It safe to speculate that if this works for Victoria, watch other states follow suit. New South Wales and South Australia will implement the tax on 2027 or when EVs represent 30% of new vehicles sales with other states considering doing similar.
The way the Victorians have gone about collecting the EV tax means the money collected within the state stays within it’s borders. State governments are always wanting to keep money in their respective states, and by tacking the charge onto annual registration the money doesn’t travel far at all with 100% of it going towards infrastructure for that state, and not helping to fund another rival state project.
Why This Is Good for Electric Vehicles in Australia
Electric vehicle owners have every right to feel like they are being unfairly targeted, who wouldn’t after all. If your government suddenly moved the goal posts mid game, you’d be pissed off too right?
But maybe consider a different perspective on the new tax and how it may actually be beneficial for electric vehicles. Think of the new tax as confirmation that a government body in this country is acknowledging the fact electric vehicles are a thing. That EVs are here now, and that their rise to popularity is inevitable. Guaranteed, if the Victorian Government didn’t see EVs as anything more than a fad or a novelty, they wouldn’t have gone to the trouble of putting the levy into legislation. They know full well, there’s money to be made from milking this cash cow that at the present moment is only a calf.
“So what?” you’re probably saying, “so what if some slimy Government has finally acknowledged that there areelectric cars on the road”. Well, here’s why it matters.
The Victorian finance minister, Tim Pallas, has mentioned “These reforms ensure all motorists pay their fair share to use our roads”. If the existing fuel excise is anything to go by as a guide, a major chunk of taxes collected should be going back into transport infrastructure projects. Infrastructure that will need to be changed, upgraded and adapted for EVs and their unique requirements. Think charging networks and who’s going to have to pay for these. While it will be spearheaded mainly by private companies i.e. Tesla, ChargePoint, ECOtality just to name a few, no doubt they will be subsidised by the Government.
Consider the duty as superannuation for your car, pay a little bit now, for future benefits paid back to you.
There’s another advantage to such a tax. Regardless of the claims about the minimal environmental impact of electric vehicles, they still leave a carbon footprint whether you want to admit it or not. It’s a smaller footprint than an ICE vehicle, but then it’s still orders of magnitude more than using public transport or riding a bike. By charging by the kilometre, it should encourage less driving in general, after all the more you drive the more it will cost. ICE vehicle owners already pay a per kilometer tax, it’s called the fuel excise and the more you drive, the more fuel burnt, and the more tax you pay. As previously mentioned, an effective tax should raise money and alter people’s behaviours.
Paying for public services doesn’t bother me, I understand the benefits of paying taxes in order to provide such public services and amenities that are useful for me, my family, and the rest of my community. A fact many of us tend to overlook.
The new tax will make no difference in EV sales in the long term for reasons mentioned above. If the new tax provides a means for funding future-proofing of roads and highways to cope with the introduction and adaptation of EVs then this can only be a positive step forward and in the right direction.
While it seems counter-intuitive on the surface, it maybe worth another look and reconsidering the position many EV owners hold firm to. When you dig deeper, there are definitely long-term benefits that will aid an electric vehicle future.
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