(Bloomberg Law) -- Efforts by Australia's local governments to charge drivers on the distance they travel is meeting resistance over worries the policy change will hinder the adoption of electric and plug-in hybrid vehicles.
Australian states—like Victoria— are turning to a levy on kilometers traveled to pay for local infrastructure, raising concerns such charges unfairly target drivers of battery EVs and plug-in hybrid electric vehicles just as the federal government is calling for more investment in EV technology and infrastructure.
“It is premature to be introducing additional taxes on electric vehicles when the local market is still in the early stages of development,” said Jake Whitehead, head of policy at the Electric Vehicle Council, an industry group opposing the changes.
Victoria—the first state to move ahead—rolled out last summer a 2.5 cents-per-kilometer for EVs and 2 cents-per-kilometer for plug-in hybrids. The levy applies even when drivers venture outside the state. Two other governments—New South Wales and South Australia—both passed legislation last fall to levy similar rates once EVs make up 30% of new vehicle sales or by 2027—whichever happens first. Tasmania said in its 2021-22 budget it is considering similar changes.
The tax “ensures a fair and sustainable revenue base to fund investments in the road network and provides increased certainty to all drivers,” said Nick Foa, head of transport services in Victoria's Department of Transport.
Despite a drop in revenue from fuel excise taxes thanks to more efficient vehicles, Australia's federal government hasn't signaled it will consider a distance-traveled charge aimed only at EVs. Between 2001-02 and 2018-19 fuel excise taxes collected by the federal government on average fell by 40% from around A$1,000 ($721) to about A$600 per vehicle, according to a report by the Federal Chamber of Automotive Industries. The group has called for a general road use charge to eventually replace excise taxes.
Critics argue a levy on distance traveled creates added costs for EV buyers. Import duties, goods and sales tax, luxury and stamp duties, and other upfront charges can already easily push the cost of a mid-range EV to over A$65,000, said Luke Houghton, Deloitte Australia's lead partner for infrastructure and capital projects in Sydney.
EVs made up almost 2% of Australia's new vehicle sales in 2021. A year before sales totaled .78%, according to sales figures released by the Electric Vehicle Council on Jan. 31. Meanwhile, EVs in Norway made up almost 75% of sales in 2020. Across Europe they totaled 10.2% of sales, 2.3% of sales in the U.S., and 6.2% of sales in China, according to an August 2021 council report
There were nearly 21,000 registrations in Australia for EV passenger cars in 2021—a jump of nearly 59% from the previous year, according to the federal government. There are over 3,000 public charging stations across the country with a large share in Victoria and North South Wales, according to the council report.
Industry, Governments Clash
Victoria officials have argued the road charge on Zero and Low Emissions Vehicles (ZLEVs) is intended as an equalization levy that helps to directly finance charging and related infrastructure.
Starting July 1, 2021, the state began charging its EVs and plug-in hybrids, with an exception for driving on rural private roads or agricultural lands. In a detailed brief, VicRoads noted that the plug-in hybrid rate is lower since drivers still pay even when using only fuel, for instance if forgetting to charge at home.
Victoria has estimated, based on a light passenger vehicle traveling on average 13,500 km or so in a year, an EV driver in the state would pay around A$337 and a plug-in hybrid driver would pay A$270 in road user charges in the first year of its new policy.
While Victoria's EV levy is generally offset by purchase incentives, it is clearly a state-level ploy to substitute federal excise taxes with its own revenue base, Tony Weber, head of the Federal Chamber of Automotive Industries, said.
Victoria's current charge, indexed to inflation, is expected to generate only A$30 million in its first three years, the Department of Transportation told Bloomberg Tax.
South Australia originally planned to introduce its charge in July 2022 but opted last October to delay its timeline up to five years. State Treasurer Rob Lucas said previously that “ultimately, this reform will have to happen” to help finance critical infrastructure.
But it could take a considerable amount of time for South Australia to reach the 30% threshold as “forecast take-up rates are subject to a high degree of error,” he said in an email to Bloomberg Tax.
Ultimately, EV drivers could pay less compared to other vehicles under the fuel tax system. For South Australia, Lucas estimated an average non-electric, traditional engine vehicle would pay around A$260 more per year than an EV driver under the future charge. Victoria's Transportation Department predicted a similar figure. Meanwhile, New South Wales Treasury estimated its EV drivers would actually pay A$307 less under the charge than the average petrol and diesel vehicle owner pays in excise annually.
Still, it remains unclear how quickly other states will follow Victoria's lead or opt to wait.
“It probably isn't going to move the way Victoria has, mostly because of the political unpopularity of road pricing,” Houghton said.
“Political will is what's challenging,” he added. “People favor paying fuel tax now, but if you put in per kilometer or time of day, it gets political. In the past, technology and data was holding this back—now, political will is the problem.”
To contact the reporter on this story: Andrew Yeh in Taipei, Taiwan at correspondents@bloomberglaw.com
To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergindustry.com; Vandana Mathur at vmathur@bloombergtax.com
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