Gutting Victoria’s electric vehicle tax is no progressive win

Last week, the High Court struck down the Victorian government’s tax on road use for electric vehicles (EVs). The result was greeted warmly by the Victorian Greens and progressive groups, such as the Australia Institute, as a “huge win for the climate”.

Their logic appears simple — the transport sector is Australia’s third-largest and fastest-growing source of emissions. Private cars contribute about 60% of the sector’s emissions and more than 10% of Australia’s total emissions. EVs could drive this down, but they made up just 8.4% of all new cars sold in the first half of 2023 — that’s a record high, but well short of making a serious difference.

Opponents worry that taxes like Victoria’s, or muted copies in New South Wales and Western Australia, undermine EVs’ spread. As economist John Quiggin wrote in The Conversation (republished by Crikey), “A tax specific to EVs could only slow their adoption, at a time when early adopters need to be encouraged.”

But the sinking of Victoria’s tax isn’t the straightforward progressive win it seems. Indeed, it opens a legal can of worms that will do far more harm than good. Those embracing it as a cause célèbre are short-sighted.

The EV tax was fairer than it seemed

Maintaining roads and other car-related infrastructure is expensive. Currently, petrol and diesel-powered vehicle drivers partially cover this cost by paying a fuel excise. Electric vehicle owners don’t.

Quiggin counters that non-EV drivers “don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs”. So EV drivers deserve to be charged less.

Sure, but Victoria’s EV tax was already concessional. Victorian EV drivers paid 2.8 cents for each kilometre they travelled, while non-EV drivers’ excise works out to approximately 5 cents per kilometre. Add the $100 registration discount for EVs in Victoria and their drivers are clearly paying much less tax than others.

Arguing that such a comparatively small sum will deter take-up of EVs, when the cheapest Australian EV costs around $45,000, is spurious. Anyone who can fork out half the average full-time yearly salary for a car isn’t going to be deterred by an extra few hundred dollars per year.

The factor suppressing EV take-up is clearly the upfront cost, which governments can more effectively help with via direct subsidies, and imposing fuel efficiency standards on manufacturers, which encourage them to invest more heavily in mass-market EVs. The Albanese government is working on the latter, but how stringent their policy will be remains to be seen. They could also help build more charging stations, which Australia currently lacks.

But if Victoria’s tax is relatively small, why bother? Because per-kilometre road charges are much better at tackling congestion.

Once you’ve bought a car, paid the rego and filled up, the marginal cost of driving each additional kilometre isn’t high, and you want to make use of your investment. This is partly why Australians drive much more than they need to.

Hence our congestion problem. Infrastructure Australia estimated in 2016 that it cost us around $19 billion per year. Electric vehicles could worsen this — their marginal driving cost is even lower, so more people may drive instead of taking public or active transport. This could lead to more demand on the electricity grid, more tyre pollution and more deaths — cars are the leading cause of death for Australian children. While EVs are surely better than standard cars, all cars have their pitfalls.

Road user charges can help by deterring unnecessary trips. Down the track, they could also be varied for peak and off-peak times, and for people with greater or fewer alternative transport options, cutting regional drivers some slack and penalising inner-city drivers who could easily hop on a train or bus.

The problem? Introducing new car taxes is politically unpopular. But what if we could establish this norm among a small category of vehicles set to take over the market in years to come, thus spreading a better tax regime by stealth? Victorian Treasurer Tim Pallas had made a canny maneuver, until it was thwarted.

The case’s legal precedent could be ruinous

In Ursula K. Le Guin’s classic sci-fi novel The Lathe of Heaven, the protagonist discovers his dreams come true. Thus he conjures a dream that humans stop warring with one another. But when he wakes up, he finds humans have only banded together because they need to fight an imminent alien invasion.

Even if you dislike Victoria’s EV tax, the legal effort to undermine it is akin to Le Guin’s fable — it has achieved its outcome only by opening up dangerous new possibilities.

The plaintiffs succeeded in a legal argument regarding what constitutes an “excise”, which, per the constitution, only the federal government can levy. In finding Victoria’s EV tax was one, the court expanded its definition of “excise” to potentially encompass a broad array of state taxes, which could now be similarly struck down.

The Victorian government’s lawyers have suggested vehicle registration charges, waste disposal levies, gaming machine levies and other betting taxes could be first on the chopping block. These reap Spring Street billions of dollars per year, let alone the amounts raised in other states, which are now worriedly scrambling.

There is nothing progressive about neutering the taxation power of state governments, which directly provide the bulk of Australia’s social infrastructure like schools, hospitals and transport networks. Amid a post-COVID revenue shortage and pressing social needs, state governments should be able to tax as much as their voters will support.

Reckless lawyers have thrown a major spanner in the works of Australia’s welfare state, all to avoid an exceedingly modest charge on affluent Tesla owners — and for some reason, the green left are cheering them on.