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My take on the EV tax

I don’t think it’s as simple as EVs good, tax bad.

Here’s my probably unpopular take on Victoria’s proposed 2.5 cents per kilometre Electric Vehicles charge:

I don’t think this is the terrible idea that the Greens and the EV industry are claiming.

Even with the tax it will still be cheaper to drive an EV than a petrol car. (In terms of taxes, about 2 cents per km cheaper, the state government claims, plus of course the huge overall saving in fuel costs).

We do need to transition to EVs, but the barrier is purchase price (around $20K higher than a conventional car) – not a small additional running cost.

I went through this when buying a new car a couple of years ago. It was looking like ~$20K for a petrol car, $30K for a hybrid, and $45K for an EV. For most people, including myself, that’s a significant barrier to EVs, even if they are cheap to run and maintain.

Nobody who buys a $75K Tesla (or even the cheapest EV, a $45K MG) is going to credibly claim that ~$350/year is going to send them broke… though a few seem to be implying it.

EVs do need to be cheaper to buy – this is mostly a Fed govt responsibility – and remember they are outright hostile to them – so no wonder there are no incentives.

However the argy-bargy over this has the State negotiating with the cross-benchers, which might result in purchase incentives.

EVs should also be cheaper to register. This is a State responsibility, and they already offer $100 annual discount. Perhaps this discount should be increased further?

Whatever the incentives to own one, EVs shouldn’t be free to drive. They cause congestion and road trauma and most of the other problems of petrol vehicles.

There are some issues with the proposal. The obvious one is it arguably sends the wrong signal towards prospective EV buyers. It’s not clear if any exemptions would be granted for people who substantially drive interstate. It’s a blunt instrument – not factoring in things like congestion. And the burden is on EV drivers to keep records for 5 years, as they may be audited.

But the main plus is that this is a way that Victoria can move towards a pricing model that helps discourage excessive driving.

It’s not like EVs are actually environmentally friendly. They’re still cars, causing all the problems that cars do – except for tailpipe emissions. At best they are less environmentally damaging than petrol cars.

And some fear that EVs may be a threat to action on walking, cycling and public transport.

For years the State Government has rejected any form of road pricing – even a central city congestion charge. This is politically expedient, but from a policy perspective is very short-sighted.

The simple conclusion here is that they’re playing the long game. This is a way of getting it in, but also covering for lost petrol excise tax. It doesn’t pay the cost of roads, but it helps. Initially only a few people will be paying it, but in the next 20 years, it’ll be most of us. Treasurer Tim Pallas has said as much:

Mr Pallas said he wants to establish a user-pays structure that will avoid a future dilemma where electric vehicles dominate new car purchases but owners pay little to no tax.

The Age 17/3/2021

For the State, it’s about protecting the revenue base. But sustainable transport advocates should welcome it as a move towards a cost to driving more often.

Ultimately if the proposal passes, we’ll have a future situation where there’s an obvious cost of hopping in the car for every trip – which will help people better consider their travel choices. And that will be no bad thing.


More reading: PTUA: Myth: Electric vehicle owners pay more tax, so shouldn’t be charged to use roads

31 replies on “My take on the EV tax”

Totally agree with this take, bugs me how EV buyers think that they are saving the environment and they should be financially rewarded for their decision, sure its better than and ICE car but its still not great!

Why should EVs “be cheaper to register” than ICE vehicles? You say they “cause congestion and road trauma and most of the other problems of petrol vehicles.”You also state they are not environmentally friendly, “they’re still cars, causing all the problems that cars do – except for tailpipe emissions.” You say there’s the “fear that EVs may be a threat to action on walking, cycling and public transport.”
Why should rego be lower?

@K, the object here is to get people switching from ICEs to EVs, but not encourage them to drive them excessively. Cheap rego for EVs helps this.

Daniel, I respect what you say but I believe you’re on the wrong side of this. You’re argument of “EVs are expensive and so the owners should not complain about a little extra tax” is totally beside the point. If an EV is released with a price tag of $25k, that argument already falls over. A Tesla is a luxury vehicle, it needs to be compared to other vehicles in this segment, that is BMW, Mercedes, Lexus, etc. When you compare against those cars, a Tesla is a similar price or even cheaper. And yet, any person shopping between a Tesla (or any EV) and Merc (or any comparably priced car) will now have the hypothetical Mercedes salesman telling them “Don’t buy an EV! You’ll have to pay additional tax and have a burden of reporting your KMs driven too!”. This will be enough to dissuade at least some potentially buyers.

Climate change is the largest problem we face today. It has the protentional to kill millions. The government should be subsiding EVs. We need to do everything that is practical to encourage their uptake. This new tax directly makes EVs (and only EVs!), that much more expensive. Victoria will have higher emissions, and higher air pollution as a direct consequence of this tax. Air pollution does kill people and has a huge impact on our health. And for what benefit? A little extra revenue that will be squandered away I’m sure. You say “except for tailpipe emissions” like it’s a trivial matter – but that is a huge consequence (perhaps the biggest) of petrol cars. EVs fix this problem.

I agree.
I was skeptical at first but then worked out what they’re doing.
This tax is the only way the state government can apply a usage-based charge on cars, since we have no state fuel tax now that there is GST, and the Premier keeps saying he won’t apply a congestion charge or anything similar.
We should definitely move from having (only) annual registration to charging for the use of cars. This has been researched to death and the conclusions make sense if we are trying to reduce unnecessary car use and improve mobility and amenity for everyone.
This is a charge to build our way towards being able to influence car use. It is certainly not a way to raise funds for road-building, but that is the only way it can be sold to people who are tied to the notion that our roads are actually paid for by their individual registration and fuel tax (the same people who say cyclists should pay registration). If it works to let them think this tax will pay for roads, then let them think it.

I personally don’t think governments should be focusing on EVs. Dramatically improving and expanding our PT system is more environmentally friendly, affordable and unlike EVs it solves the congestion problem!

Having a PT system that works would mean more and more people won’t need to own a car at all let alone a EV. My auntie lives in an outer suburb in Stockholm (think Frankston to City distance) and she dosent even need to get a license because the PT there is absolutely superb!

And for someone like me who’s a retail worker $50,000 for an EV is completely out of reach! I struggle to even afford a second hand Petrol car for $10,000 let alone $50,000 for an EV! I also imagine it’s out of reach for many others too.

Just imagine how better it would be for working class people if they didn’t have to own a car and could use the PT system instead if it were reliable. It would not only benefit their wallets but would also be much better for the environment because it’s 1 less car on the road!

@Umi, agree the imperative here is to reduce the disparity in purchase price between EVs and IC cars (perhaps through emissions standards) and ensure there’s adequate supporting infrastructure. Against this, the presence of an extra charge of perhaps $350 a year (partly offset by a $100 discount on rego) is small change. The direct analogue of taxing petrol for IC cars is to tax electricity used for charging EVs, but this would be a nightmare to administer compared to the relatively simple step of having people record their odometer reading on a rego statement once a year. Meanwhile, the charge is set at a level around half what an equivalent petrol car is liable for in fuel tax, so it’s still very much to the advantage of EVs (particularly given the huge saving in electricity compared with petrol).

Perhaps the more palatable solution is to discount rego for EVs by $350 rather than just $100 along the lines Daniel suggests, which nullifies the cost to the average EV driver.

There’s much more to the ill-effects of car dependence than tailpipe emissions, and petrol excise was never meant to be a de facto carbon tax. The larger issue is that if we provide benefits to EV owners that aren’t matched with equivalent benefits for walking, cycling and public transport – or heaven forbid, seek even more revenue from non-motorists to fund car infrastructure so EV users aren’t taxed – it’s steering people’s choices in favour of more driving, which has bad consequences even if it’s zero-carbon (congestion, road danger, land use, even pollution from tyre and road dust). Ultimately, to defeat climate change we need not just better driving but less driving.

Daniel, I follow your logic. Road users should contribute to the congestion (and carnage) they cause.
The state government does have a CBD car park tax which is a defacto congestion tax of sorts.

@Daniel, given the current rego cost of $835/year in the metropolitan area, just how large a discount do you expect would get people to get rid of their ICE and spend more money on a new EV? Would $400 be enough to get people to swap? I’m doubtful even $835 discount would be enough, especially when compared with the tens of thousands of extra money that would be needed for a purchase.

@Umi, I still think the high purchase price of EVs is the barrier to take up. Yes, Teslas are luxury cars… but there’s currently nothing cheaper than $45K.

But leaving that aside, the key objection to the 2.5 cents per kilometre charge is that it’ll make EVs uneconomical to run compared to petrol cars.

I linked to this AGL calculation above (using 30 cents per kWh for EV vs $1.43 per litre for petrol) says fuel is up to 2/3 cheaper in an EV. That might be overly-optimistic, perhaps assuming only charging at home.

There’s also the RACV’s car running costs survey. This is monthly costs based on 15000 km per year (eg 1250 km per month)

They say small to medium petrol cars (eg excluding people movers and SUVs) fuel costs range from $74.39 (and that’s a Corolla hybrid) up to $138.16.

For electric cars (excluding the Outlander SUV, since we’re trying to just compare cars) fuel costs range from $36.56 to $53.44. Add the proposed charge ($31.25 for 1250km) and you get $67.81 to $84.69. Still quite a bit cheaper than the petrol cars.

For a direct comparison, we could also use RACV’s figures on the Outlander: petrol $127.53 / electric $83.97 + the proposed $31.25 charge = $115.22.

(And remember the Rego discount each year. Plus EVs are said to be cheaper to maintain.)

Yes – governments should be subsidising EVs. But they should be subsidising people buying them, not people driving them.

I’d be interested in seeing any other Australian fuel cost comparisons.

@K, yes. That’s why it’s not about rego alone. Purchase price has to come down.

A key sentence that always needs to be kept in mind, “It’s not like EVs are actually environmentally friendly. They’re still cars, causing all the problems that cars do – except for tailpipe emissions. At best they are less environmentally damaging than petrol cars”.

While I believe in vehicle usage charges per kilometre including making trucks pay their way, they really disadvantage lower income outer suburban people without good public transport and I don’t know how they could be compensated. Maybe it should be left to market forces and people can or should buy a more modest property closer to the city.

A city congestion charge is a no brainer. Most of the people who park in the QV car park would be local people with trains and trams in all directions. In nearly twenty years of living about two kilometres from the city, I’ve driven to the city once on a quiet Saturday afternoon at the west end, picked up or dropped a few people from So Cross Station and been driven to the city once by a niece.

@Daniel – You agree that the cost of EVs needs to come down to increase their uptake compared to petrol cars. And yet you support a tax that will directly increase the cost of EVs – and do nothing to change the cost of petrol cars. Thereby increasing the cost of an EV compared to a petrol car….so I don’t really understand the logic of your argument. It seems you are contradicting yourself, unless I am understanding wrongly. Anyway – I’m sorry I couldn’t change your mind.

Also, ~$45,000 is a perfect reasonable price to pay for a new car – judging by what people actually spend. The most popular car sold in Australia (excluding the HiLux) is the Toyota RAV4. The RAV4 _starts_ at almost $40,000 for the most basic model (which almost no one buys) and goes all way up to $54,000 for the fully loaded option. So it seems as though many people are willing to pay that kind of money for a car. The MG ZS EV (which is the cheapest EV available) is “fully loaded” at $44,000 – and so is in some ways actually cheaper than the most popular car in Australia! (And yes, I was also surprised by how expensive the RAV4 is when I checked – and yet it is still the most popular car there is).

It’s a bit harsh to say the Federal Government is hostile to EVs, it’s not. The issue that arose at the last election in relation to Labor’s radical proposals to make electric cars compulsory by such and such date (iirc, I can’t recall the details) is that you have to be quite wealthy to own an electric car and a push to ban petrol cars will deprive most of the population of the ability to own a car, which would be a catastrophic policy to pursue – and proved to be so electorally for Labor. I used to work in the automotive manufacturing industry and I can tell you that the margins on smaller, popular cars are small and they need to be manufactured as cheaply as possible to be viable. If you make them electric you’re adding at least a third to the manufacturing costs, but the market at that level is not going to (or be able to) pay a third more to buy one. It’s a disastrous course for a manufacturer to pursue. This is why they start at $45,000 upwards and only quite well-off people buy them.

Electric vehicles generally cost a lot more to manufacture. That’s unlikely to ever change. A trolley or electric bus costs typically about 50% more than the equivalent diesel bus. Electric trucks and vans will cost more. Electric traction is costly, combustion engines became relatively cheap over the years. So the upshot is that ownership of electric private cars is a rich person’s indulgence and this brings us to subsidies and incentives. When you pay subsidies and provide tax discounts, the money for that comes from taxpayers. Taxpayers include average and poor people as well as a minority of rich. So, in raw terms, you’re asking the poor to subsidise the rich. You’d think the average Labor government or opposition would understand that, after all, they’re supposed to be on the side of workers, not wealthy Tesla owners.

There are already initiatives that grate in this regard. For example, the Federal Government, far from hating electric cars, gives a discount off the luxury car tax for electric and hybrid cars. The NSW government (and possibly other state governments) provide a discount on motor vehicle tax (including registration) for electric and hybrid cars. It’s not equitable. It punishes the majority of people who can’t afford an electric car. In the end, the uptake of electric cars is something the marketplace determines and it depends on the wealth of the community. No amount of subsidy and incentive will change that.

Where you are right is that our efforts should be directed to increasing electrification of public transport and commercial vehicle fleets and various governments, state and federal, are already pushing a number of initiatives in this regard as well as encouraging the establishment of charging infrastructure as widely as possible. In terms of public transport, NSW is in a spectacular lead, with the prospect of most of its fleets – trains, trams, buses and ferries – being electrified by the 2030s. Other states are barely testing the waters. Then of course you encourage people to leave their cars and use public transport. NSW is also well in the lead in that regard too.

I know we’re in the minority here Daniel, but I agree with this position. The greens appear to be confusing two different, but complimentary positions that can be taken on EVs.

The first position, is that we want to transition society from using IC cars to EV cars. That means making it cheaper to buy EVs and making it a no brainer.

The second position, is that we want people to chose to walk then bike then PT then car where possible. Now that order may be controversial, but in terms of efficiency, it is the most optimal.

Circling back to the green’s position, they seem to think that an EV mile tax is an attack on position 1, when it is actually a policy designed to support position 2. I don’t like to use the term champagne socialist, but it seems that the greens are advocating for EV car usage over walking/biking/PT which doesn’t seem very green to me.

The other debate you’ll see is that a state shouldn’t propose a tax to replace a federal one (state road usage, fed fuel tax). Considering an EV can only be taxed by the former, and an IC can only be taxed by the latter (well an IC could be taxed by both, but that’s not the proposal here, although maybe it should be?), there is no overlap and no issue for me. Considering that most roads are paid for by the state, it would make sense to use this as an opportunity to let the state tax as needed to fund the roads it controls instead of having to rely on stamp duty or GST to pay for roads.

@Umi, I just noticed this article which goes into some detail about one of my main concerns: talking about the environmental damage caused by EVs. They’re better than petrol cars, but shouldn’t be the first choice for urban transport.

https://www.planetizen.com/blogs/112490-electric-cars-wont-solve-climate-change

@TonyP, just on a couple of your points. As I understand it, one of the main costs in EVs is the batteries, and it’s expected that these will continue to drop in price. Economies of scale will also help of course.

Further, there seems to be a widespread view that EVs will reach price parity with ICEs in the next 10 years. Also note the large numbers of car manufacturers pledging to phase out ICEs.

In a decade, it’s going to be increasingly difficult to buy car which isn’t an EV.

Secondly, the LCT provides for a moderate discount on EVs, purely because the threshold is slightly higher. https://thedriven.io/2020/07/01/australias-luxury-car-tax-threshold-quietly-lifted-for-electric-vehicles/

I’d be cautious about permanently waiving the LCT on all EVs, but the Feds can clearly do more to help push the transition – starting with dropping the ridiculous rhetoric about EVs ruining the weekend.

How long ago did the federal Liberals use that catchcry? As a catchy slogan to knock off Bill Shorten at the last election? It’s certainly not their attitude now, but they have the view, as I do, that the marketplace will determine the rate of uptake. If they’ve learned from Shorten’s mistake, no political party campaigning for an election will terrorise the electorate by promising them that nobody, except those who can afford it, will be able to buy a car in xx years.

The price of electric buses, relative to diesels, certainly hasn’t come down in decades and that’s traditionally without considering batteries which have only been taken up in the last decade or so. As Australia now imports all of its cars, we will have to wait and see what those overseas manufacturers come up with in terms of bringing prices down within the reach of average Australians. Subsidies and incentives will influence that very little. I think our efforts as public transport advocates is actually to encourage the provision of better public transport to attract people out of their cars in the first place. Any car on the road, whether combustion- engined or electric, as you point out, is undesirable and electrification per se doesn’t deal with that problem. Better public transport does.

The other area that we can influence the growth of electric vehicles and where it is much more possible to achieve in a short timeframe is encouraging governments and operators to replace their combustion-engined fleets with electric vehicles and that’s what’s moving ahead in NSW and to some (rather slow) extent in other states and territories.

Nobody has mentioned the fact that cyclists don’t have to register their bikes let alone require a license, every other movable vehicle does.

So how about rego covers costs roads infrastructure and crashes, petrol excise covers environmental costs. EV drivers save according to the extent of the benefit to the environment/community?

Here’s an idea. Why not introduce the 2.5 cents per litre tax to all vehicles and not just EVs? That way everyone is getting charged the same way no matter what type of vehicle they drive. However, with ICE vehicles, the tax would be in addition to the existing petrol excise. Importantly, it is not setting a price signal that EVs will be getting charged an extra tax that ICE vehicles are not.

In the future potentially petrol excise taxes could be removed and replaced with a higher tax per km for ICE vehicles to send a signal to encourage the uptake of EVs.

Nobody seems to consider the billions of dollars Australia sends overseas to import fossil fuels every year, EV’s can be totally green to run if solar and wind power is used, and we have plenty of sunlight ! The Balance of Payments should push the Feds to support EV’s if nothing else. Strategically if a blockade was put on our fuel imports by a foreign power, we would grind to a halt within weeks or months.

Just out of curiosity, how much cost is there in terms of noises from the road and also wear and tear on the roads for EV vs petrol?

@Derek Summers. I think vehicles are required to be registered to try to regulate their safety. Motorised vehicles can be much more dangerous than human-powered vehicles. Lose control of a motorised vehicle and the result can be tragic to many people, with much damage and injury occurring. (The operator requires licensing to ensure they can safely operate the machinery.) Bicycles? Up to a certain extent (such as with e-bikes), they would not require registration because they are nowhere near as risky.

I broadly agree with your unpopular view Daniel. However, there should be an equivalent signal to disincentive ICE use (additional to fuel excise).
The Greens continuously do themselves a disservice by rejecting the Good in pursuit of the perfect – often at odds with their own agenda (ahem, Carbon policy ca. early 2010’s anyone?).

There are various proxies used in the different states to price registration:
https://www.qld.gov.au/transport/registration/fees/comparison
Even just changing to one of the other already used systems would cause similar outcries, and corner case examples held up as why we should stick with what we have already. VIC is possibly the dumbest option of “flat” pricing (Australia or worldwide). There is quite the correlation between registration cost and number of registered vehicles per capita:
https://chartingtransport.com/category/car-ownership/

And the usual argument of “what about the people who live on the outer suburbs and have to drive”. Perhaps the people who live in the country or outer suburbs could give me a rebate on my property price, they get cheaper land, why can’t I have just as much space? At some point there is a tradeoff, lower transport costs (road space, parking, services, etc) compete against property prices. Its entirely possible to live without a car (same charting transport link above), but most people can’t imagine it.

Ok except this is really just about fattening up Vicroads for the private owners they are now flogging it off to.

I agree that EV uptake is correlated to price of the vehicle and probably not incidental charges. The state government is right to start a transition to fees based on usage of the road. As to record keeping: EVs are computers on wheels. Log keeping of kms driven and reporting of that will be built in. Stop complaining about details: start complaining why the commonwealth is not providing purchase incenstives!

The key is simple: they need to charge any such fee to ALL cars, not single out EVs. Otherwise, you will end up with a situation where gas cars — even hybrids which are basically EVs with a nasty gasoline-powered generator in them — are cheaper to operate than EVs, and that is bad.

@Nathanael, even with the proposed Vic charge applying only to EVs, they are still cheaper to run than petrol of hybrid cars, thanks to petrol taxes.

“But sustainable transport advocates should welcome it as a move towards a cost to driving more often.”

That’s no different to now though. The more you drive, the more petrol you use and the more fuel excise you pay. For someone whose car uses 7L/100km, pays 2.9c/km fuel excise tax. The more city driving someone does, the less fuel efficient and the more fuel excise they pay.

The LCT should definitely be revised given that the threshold for fuel efficient vehicles has been pretty stagnant whilst the threshold for other vehicles has steadily climbed for the last 10 years. I don’t think EVs should be exempt though.

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