Is the Coalition planning to overtake Labor and tax rich inner-city EV drivers?
Tax reform is hard. It creates winners and losers.
But there are some taxes that seek to correct unfairness and share the load more evenly.
You’d like to think such a thing would be politically possible.
Take road user charging. When all vehicles were driven by internal combustion, it was easy to charge drivers for the upkeep of roads by putting an excise on fuel.
But with the growing uptake of electric vehicles, more road users are doing some good for the environment by reducing emissions while also doing some “bad” for government coffers by escaping paying the tax for roads.
The fuel excise is on the decline, which is good for drivers who can afford to and prefer to drive an EV, and bad for those who can’t or won’t.
Several state governments led by Victoria summoned the political courage to tax low and zero emissions vehicles. For its troubles, Victoria ended up in the high court.
There are certain sorts of taxes that states are not allowed to levy, according to the constitution. The commonwealth intervened on the side of the EV driver plaintiffs. In October the court struck down the tax.
This continues a long history of the court siding with the commonwealth in taxation matters, a history that has resulted in the fiscal imbalance at the heart of Australian federalism.
States need cash to pay for services including health, education and roads but it’s the federal government that collects most of the taxes.
The Vanderstock high court decision killed off Victoria’s EV tax and similar proposals in New South Wales and Western Australia.
In December treasurers agreed instead to establish a working group to develop options to respond, such as “long-term options for zero emission vehicles user charging”, according to a statement put out by the treasurer, Jim Chalmers.
The Australian reported last week that “long term” means not in this budget, nor in this term of government.
This didn’t surprise me, as internal Treasury advertisements in January trying to recruit eager mandarins to the road user charge unit described a zero emissions vehicle tax as an “emerging government priority”.
Emerging – as in not a priority. A solid bureaucratic metaphor for on the backburner.
What happened next was interesting, though. The shadow transport minister, Bridget McKenzie, accused Labor of “failure to reform on road user charges” and a “missed opportunity”.
McKenzie is no stranger to this issue. In October she spoke at a conference in Singapore about how “unfair and inequitable” the current system is in allowing “the rich living in the capital cities” to avoid excise, while “the poor and those in regional areas will be left paying the bill for decades to come”.
McKenzie told Guardian Australia the speech shows “the Coalition have given more thought to the issue of road funding in a low emissions future than the Labor party has with all their resources of Treasury”.
“The treasurer has been given clear direction from the high court.”
It certainly sounds as though McKenzie is travelling in the direction of taxing rich inner-city EV drivers. It could be a potent line given how expensive petrol is these days.
Will the next election be a duel be
tween Labor’s fuel efficiency standards and the Coalition’s EV tax? Or could Labor neutralise the Coalition EV campaign by agreeing to road user charging, whoever wins the election? Either way it would be a fascinating development.
I understand that EVs are good for the environment, and that weighs against taxing them. But governments should spend more on improving charging infrastructure and subsidies or loans to overcome the large upfront cost of buying one. These are the real disincentives for many.
As Justice James Edelman observed in Vanderstock: a $300-a-year tax is unlikely to have a substantial impact on demand for cars that cost between $40,000 and $300,000 each.
It is a little surprising that, having obtained the desired result, the commonwealth has been so flat-footed to respond.
The case was two years in the making. It was filed in September 2021 under the Morrison government, argued in written and oral submissions after Labor’s election, then decided two years later in October 2023.
In that time was so little thought put into whether the commonwealth wanted to use the taxation power it was seizing from the states?
Should it just have left the power to tax in the hands of the governments willing to use it?
The NSW treasurer, Daniel Mookhey, said after the decision he expected the commonwealth to “be a party to the solution”.
I hope we see a Coalition policy that prompts a debate about nationally consistent road user charging.
As it stands, the commonwealth appears to be the dog that caught the car but doesn’t know what to do with it.
We wouldn’t want fairness to stay stuck in the slow lane.