Now is the time to tax electric cars: IPA

Mark Ludlow

Nov 21, 2019

AFR

Queensland Bureau Chief

State governments could earn hundreds of millions of dollars a year in new revenue by 2025 if they introduced a road user charge for electric vehicles to make up for declining fuel excise revenue, according to a new report.

While the federal government has dithered on the issue of road user charging in recent years – despite the looming hole in its budget revenue – a new report by Infrastructure Partnerships Australia said federal and state governments had five years to introduce a user charge before the market was swamped with affordable electric cars.

Infrastructure Partnerships Australia chief executive Adrian Dwyer said it was time to act on road user-charging now. Dean Sewell

“While electric cars still only represent a small fraction of new car sales, the future of our light vehicles fleet is electric,” Infrastructure Partnerships Australia chief executive Adrian Dwyer said.

“Once there is an electric car in every street, the opportunity will be lost.

“Electric vehicle motorists pay nothing at the pump, and only contribute to the road network through state-based road access charges. Under the current system, more electric vehicles will mean less funding for roads.”

The Commonwealth receives more than $11 billion a year in fuel excise, but more efficient vehicles have led to a decline in revenue, which has slumped 20 per cent between 1998 and 2015. The uptake of electric vehicles is set to exacerbate the fall in excise revenue.

The IPA report to be released on Thursday has suggested a simple, distanced-based user charge of up to 4 cents per kilometre should apply to electric vehicles only.

Owners would be required to submit odometer readings every six or 12 months to transport authorities when renewing their licence.

Existing petrol-based cars will continue to be taxed the fuel excise, with the revenue still flowing to the federal government. The user charge for electric vehicles could be capped to ensure it didn’t exceed the fuel excise.

“Clearly, how we pay for roads needs to change. Electric vehicles present a unique opportunity to attach reform to the rise of an emerging technology,” the report said.

“A road-user charge for electric vehicles is a no-regrets reform that would benefit Australians for generations to come.”

Road pricing has been recommended by the Productivity Commission and Infrastructure Australia, but has been put in the “too hard” basket by politicians.

The IPA concedes there might be a constitutional issue preventing the federal government from introducing the user charge, given it would constitute a Commonwealth charge on roads which are the domain of state governments.

It recommends state and territory governments working together to introduce a compatible road user charge for electric vehicles. The rate could vary between states.

Fuel excise revenue has been falling in recent years, while kilometres driven has been increasing. Infrastructure Partnerships Australia

The user charge could be adapted down the track to move to a location, time or mass-based charge.

In an era of dwindling revenue bases for states, the IPA said the road user charge could offer states and territories with a lucrative incentive.

“There is a substantial carrot for states and territories that embrace this reform – the opportunity to tap into a new source of revenue,” the IPA report said.

“This would enhance the autonomy of jurisdictions to manage both the supply and demand of their road networks, including directing investment to transport networks with less reliance on, or intervention from, the federal government.”

The IPA predicts revenue from a road user charge for electric vehicles could total hundreds of millions of dollars by the mid-2020s and into the billions by 2030.

Electric vehicle savings

The report found the new user charge would not slow the uptake of electric vehicles in Australia.

Analysis for IPA by EY found even with a charge of up to four cents per kilometre, electric vehicles would still be a cheaper proposition than internal combustion engines – offering a saving of about $3600 over an eight-year lifespan.

Electric vehicles account for less than 0.076 per cent of Australia’s total car fleet, or a few thousand.

While electric cars, like Elon Musk’s Tesla, are currently viewed as luxury items – with a six-figure price tag to match – they are coming down in price, especially as traditional car manufacturers like Volvo, Volkswagen and Mercedes-Benz signal plans for mass production and the phasing out of petrol cars.

Price parity between electric cars and traditional petrol cars is expected to be reached by 2024.

The IPA report said a distance-based charging regime for large vehicles and diesel-powered cars had worked well in New Zealand, where it has been in place since 1987. It will apply to electric vehicles once they reach 2 per cent of the nation’s vehicle fleet.