Bills Digest No. 009, 2022–23

PDF version [484KB]

Tim Brennan
Science, Technology, Environment and Resources Section
26 August 2022

Key points The Bill exempts certain electric vehicles from fringe benefits tax. For eligible vehicles this will result in a significant cost reduction. The majority of vehicle sales do not attract fringe benefits tax and would not be eligible for the discount proposed in the Bill. Because of this, the Bill has the potential to result in only a relatively modest increase in the sale of electric vehicles. This may be a recognition that there has been a shortage in the supply of EVs in Australia. It also signals to the vehicle sector that the Government is supportive of expanding the electric vehicle fleet, which may encourage manufacturers to increase supply to the Australian market. On its own, the Bill is unlikely to promote sufficient sales to align with international climate change targets or the sales figures in the Government’s pre‑election modelling. The Government is committed to other policies to increase electric vehicle sales and there are other policy options available. These include vehicle efficiency targets and sales rebates, which could potentially result in greater growth in electric vehicle sales and have fewer equity concerns than the changes outlined in the Bill.

Contents

Purpose of the Bill
Background
Key issues and provisions
Position of major interest groups
Committee consideration
Financial implications
Statement of Compatibility with Human Rights
Concluding comments

 

Date introduced:  27 July 2022
House:  House of Representatives
Portfolio:  Treasury
Commencement: Sections 1 to 3 commence on Royal Assent. Schedule 1, containing the key provisions, will commence from the first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at August 2022.

Purpose of the Bill

The purpose of the Treasury Laws Amendment (Electric Car Discount) Bill 2022 (the Bill) is to amend the Fringe Benefits Tax Assessment Act 1986 (the Act) to exempt low and zero emission cars from Fringe Benefits Tax (FBT).

Background

The ALP’s electric vehicle policies

The Bill is one of the components of the Australian Labor Party’s (ALP) suite of policies designed to encourage the adoption of electric vehicles in Australia. In addition to the changes outlined in this Bill, the Electric Car Discount package and the Driving the Nation Fund package include:

• exempting electric cars costing below the luxury car tax threshold for fuel efficient vehicles from import tariffs (where these have not already been removed through free trade agreements)
• an electric vehicle (EV) charging network that will include 117 fast charging stations on highways at an average interval of every 150 kilometres
• hydrogen highways to provide hydrogen refuelling stations for heavy hydrogen-electric vehicles.[1]

Electric vehicles in Australia

There are several types of cars that partially or fully use an electric powertrain. These include:

• battery electric vehicles (BEV): fully electric vehicles that contain only a battery powered motor and cannot be powered by liquid fuels
• plug-in hybrid electric vehicles (PHEV): vehicles that can be plugged in and charged with electricity to power the battery motor but also contain an internal combustion engine powered by liquid fuels
• hybrid vehicles (HEV): hybrids, also referred to as ‘mild hybrids’, contain a liquid fuel powered internal combustion engine as well as a battery motor that cannot be plugged into an electricity source but is charged while driving through regenerative braking (which is also used to charge batteries in all other types of EVs)
• fuel cell electric vehicles (FCEV) are charged by a fuel cell typically fuelled by hydrogen.[2]

This Bill provides an exemption to FBT for BEVs, PHEVs, and FCEVs. The exemption does not apply to HEVs.

Although all these vehicles are at least partially powered by electricity, the terms ‘electric vehicles’ and ‘EVs’ are often used to describe the two vehicle types that can be plugged into the electricity grid (BEV and PHEV). In this Bills Digest, EVs refers to BEVs and PHEVs, unless otherwise specified.

Due to superior range and refuelling times, FCEVs could potentially play a significant future role in the heavy transport sector (for example, trucks).[3] FCEVs currently have a negligible presence in the passenger vehicle market, and it appears unlikely they will be a serious competitor to BEVs in this sector.

Table 1:     Emissions and sales by vehicle type[4]

Vehicle type	Average tailpipe emissions intensity (grams of CO2- e/km) - 2020	Sales - 2021
Petrol	166	580,495 (57.0%)
Diesel	178	346,990 (34.1%)
HEV	102	70,466 (6.9%)
PHEV	47	3,372 (0.3%)
BEV	0	17,293a (1.7%)
FCEV	0	38 (<0.1%)

Emissions intensity data sourced from: National Transport Commission (NTC), Carbon Dioxide Emissions Intensity for New Australian Light Vehicles 2020 (NTC, August 2021), 54. Note, this data does not provide emissions intensity figures for FCEVs, figure provided a Parliamentary Library assumption. Sales figures sourced from: M. Costello, ‘VFACTS: Australia's 2021 new car sales detailed in full’, CarExpert, 6 January 2022.

(a) This figure is based on the total sales of EVs, 20,665, as reported by the Electric Vehicle Council (State of Electric Vehicles, (March 2022), 5), which includes data for Tesla (unlike the VFACTS data quoted by Costello). As the Electric Vehicle Council EV data includes both PHEVs and BEVS, the figure for PHEVs from the VFACTS data has been subtracted from the total sales figure. The resulting calculation is 20,665 – 3,372 = 17,293. Sales percentages have been calculated by the Parliamentary Library.

Decarbonising the transport sector

According to the Australian Government’s ‘National Greenhouse Gas Inventory’, in 2021, the transport sector was Australia’s third largest source of greenhouse gas emissions, accounting for 19% of all emissions. In contrast to the electricity sector, where renewable energy is being rapidly deployed, progress in decarbonising the Australian transport sector has been minimal.[5]

ClimateWorks Australia’s Decarbonisation Futures records that the bulk of Australia’s transport emissions come from road transport and Australia’s road fleet is one of the most emissions‑intensive in the world. Australian passenger vehicles, on average, are 45% more emissions intensive than those in Europe.[6]

Decarbonising passenger transport can be undertaken through several measures. Firstly, trips can be avoided entirely through increased working from home and use of video conferencing technologies. Additionally, trips can be shifted from higher polluting modes (primarily private cars) to less polluting modes (for instance, public transport, cycling, and walking). Greater use of public and active transport modes also brings significant social benefits through reduced road accidents, congestion, and improved public health.

The other primary means of reducing passenger transport emissions is for less polluting vehicles to gradually replace the existing car fleet. The aim of this Bill is to accelerate the sale of EVs, leading to reductions in greenhouse gas emissions of the road transport fleet.

BEV’s produce significantly lower life cycle emissions than internal combustion engine vehicles (ICEVs) according to analysis by Robin Smit of Transport Energy/Emissions Research (TER).[7] This is true even when charged with electricity produced by fossil fuels, although the emissions reductions will increase as the proportion of renewable energy generation in the electricity grid increases. This makes transitioning the car fleet to BEVs one of the most important actions required to reduce emissions from the transport sector.[8]

As can been seen in Table 1, HEVs do provide significant emissions reduction compared to petrol and diesel vehicles but, on average, still have more than double the emissions of PHEVs. Referring to both HEVs and PHEVs, the Grattan Institute, in its 2021 report, Towards Net Zero, states that a ‘significant shift towards hybrids remains inconsistent with a target of net-zero emissions by 2050’.[9]

Fleet turnover

For governments, implementing policies that increase the uptake of EVs in the short-term can be a relatively expensive proposition. From a climate perspective, however, the long operating lifespan of motor vehicles means that if government policies can encourage the purchase of EVs over new ICEVs, this could significantly reduce the total quantity of greenhouse gases emitted into the atmosphere.

The Bureau of Infrastructure and Transport Research Economics (BITRE) says that the average Australian car is around 10 years old.[10] In its 2020 paper, Decarbonisation of Road Transport Network Operations in Australia and New Zealand, Austroads estimates that, at current rates of vehicle turnover, to ensure ICEVs make up no more than 10% of the fleet in 2050 would require that no ICEVs were sold after 2024.[11] Although government policies can be used to accelerate fleet turnover, for example through cash for clunkers policies, the effectiveness of these policy interventions has been questioned.[12]

Achieving net zero emissions by 2050 is likely to require that EVs make up 100% of light vehicle sales by, at the latest, 2035, according to the Grattan Institute.[13] Grattan says that this does not appear likely to be achieved relying solely on the market and is, instead, likely to require government support to boost EV sales.[14]

Sales of electric vehicles

The International Energy Agency, in its 2022 Global EV Outlook, says that, globally, EV sales tripled between 2018 and 2021 reaching 16.5 million.[15] Nevertheless, EVs still represent a minority of the total car market, accounting for 9% of global car sales in 2021.[16] The Electric Vehicle Council, in its March 2022 publication State of Electric Vehicles, says Australia is well below the global average with EVs accounting for less than 2% of sales in 2021, although sales are growing rapidly, tripling between 2020 and 2021.[17]

The Global EV Outlook says that there is significant divergence in how quickly auto markets are transitioning to EVs. In Europe 17% of new vehicle sales are EVs and in China 16%. While in both Norway (86% market share) and Iceland (72%) EVs now outsell ICEVs. In contrast, in some large emerging economies such as Brazil, India, and Indonesia EVs make up less than 0.5% of new car sales.[18]

EVs sales are projected to grow rapidly, with the bulk of this growth coming from BEVs. Globally, the International Energy Agency forecasts that, under current policy settings, EVs will account for just over 20% of new car sales.[19] Analysis by Deloitte projects EVs to reach a 32% market share by 2030.[20] In Australia, Austroads forecasts EV sales proportions for 2030 of 12% (slow uptake), 23% (medium uptake) and 43% (rapid uptake).[21]

Sales in these ranges are unlikely to be compatible, however, with the global climate agreements with targets such as reaching net zero emissions by 2050 and keeping global warming to under 1.5°C. Scenarios based on reaching these climate targets include an accelerated transition of the vehicle fleet to EVs. For example, ClimateWorks Australia’s scenario to keep warming below 1.5°C requires 76% of new car sales to be BEV or FCEV by 2030.[22] Similarly, the Grattan Institute states that achieving 75% EV sales (BEV and FCEV) by 2030 and ‘near-100% by 2035 would get the light vehicle fleet mostly on track for net zero’.[23]

The ALP’s modelling prior to the election for the Powering Australia program forecasts that EV sales in 2030 will rise from 29% under existing programs to 89% with the introduction of all ALP policies.[24]

Challenges to greater electric vehicle uptake

In 2021, the Electric Vehicle Council (EV Council) reported that 54% of Australians indicated that they would consider purchasing an EV for their next car.[25] This suggests there is demand for EVs but that there are several barriers that are restricting sales growth. These are discussed below.

Supply

There appears to be an insufficient supply of EVs coming into Australia. This situation can be seen in the examples of EV models selling out within minutes of being released in Australia and in the long wait times to access some models. Supply has been affected by global supply chain issues but has also been impacted by the Australian policy environment.[26]

There is also a relatively limited selection of EVs currently available. In early 2022, there were 34 models of EVs available.[27]

Upfront costs

There is a distinct lack of affordable EVs available in Australia. Australians spend on average around $40,000 on a new car, but there are currently no EVs available in this price range and only 2 BEV models and 3 PHEV models available under $50,000. In a recent survey by the EV Council the high cost, relative to petrol and diesel vehicles, was reported as the most common factor discouraging Australians from purchasing an EV.[28]

The Bureau of Infrastructure, Transport, and Regional Economics anticipates that EVs will remain above the price of ICEVs until at least 2030.[29] Forecasts by ClimateWorks Australia and the CSIRO anticipate price parity being reached by the middle or the end of this decade, respectively.[30]

Range anxiety and vehicle charging

There remains a concern that EVs will not be able to travel sufficiently far for the trips that most people wish to take. Around 73% of Australians commute less than 20 kms to work (so 40 kms a day).[31] EVs are easily able to cover this distance, but there are concerns about the convenience of locating charging facilities on longer journeys. For example, 85% of respondents in the EV Council survey cite accessibility to charging infrastructure as a barrier to purchasing an EV.[32]

Policy options

A wide range of policies have been used to promote EV uptake both overseas and by Australian states and territories. In many of the regions with the highest rates of EV uptake a range of measures have been used to incentivise sales of EVs.[33] The following section provides a brief overview of some of the policy options available.

Sales mandates

An increasing number of nations are committing to dates for the complete phase out of sales of ICEV. For example, 38 counties have signed a United Nations declaration which calls for all new cars and vans to be zero emissions by 2040 and by no later than 2035 in leading markets.[34]

Some counties have targets to phase out ICEV this decade, including Norway (2025), Iceland, Sweden, Ireland, and Slovenia (2030).[35] Not all of these countries have, however, passed legislation to effect the phasing out of ICEV. Additionally, the European Union (EU) is considering strengthening its fuel efficiency standards policies that would effectively ban the sale of ICEV sales by 2035, which is discussed further below. In Australia, the Australian Capital Territory has recently committed to banning the sale of petrol cars from 2035.

Several jurisdictions, including California and China, have more complex mandate‑based systems that require auto‑manufacturers to produce a minimum proportion of zero or low emissions with the proportion increasing over time. Manufacturers also receive credits for zero and low emission vehicles, which may be traded with other manufacturers.[36]

Vehicle efficiency standards

Vehicle efficiency standards set regulated standards for CO₂ emission from vehicle tailpipes. Vehicle efficiency standards were first introduced in the European Union in 2009. Australia is one of the few major economies without mandatory vehicle efficiency standards.[37] Policy discussion related to the potential introduction of vehicle efficiency standards has been ongoing for many years and is outlined in a recent Parliamentary Library Chronology on the topic and related issues.

Although vehicle efficiency standards are aimed at reducing emissions across the entire vehicle fleet, they also provide an incentive for growth in the sales of EVs. The Grattan Institute describes efficiency standards as the most efficient means of phasing out ICEV sales by 2035.[38]

The European Union’s (EU) carbon emissions standard for passenger cars is 95g/km (Australian cars on average emit around 150g/km), which manufacturers must meet as an average across their fleet or be fined.[39] In 2020, Volkswagen Group was fined more than $150 million for failing to meet the current standard. This provides manufacturers with a financial incentive to provide EVs to the European market instead of markets (like Australia) where no financial incentive exists.[40]

On 8 June 2022, the EU Parliament voted to support the final report on revised vehicle CO2 emission standards legislation and mandate that all new car and van sales should be zero emissions from 2035. The proposed legislation is a key part of the Fit for 55 package (a large-scale climate package of legislation introduced by the European Commission in 2021) and mandates the introduction of more stringent standards requiring emissions reductions of 55% by 2030 and 100% by 2035 (thus effectively banning fossil fuelled passenger vehicles).

On 28 June 2022, the Council of the EU[41] approved[42] the 2035 target of 100 percent CO₂ emissions reduction from passenger vehicle tailpipes and ‘found compromises on emissions trading and a “Social Climate Fund”’.[43] This set the stage for the trilogues[44] to proceed. The trilogues could start in September, so sometime later this year there is likely to be an agreement on the final text of the law. Given that all three institutions (that is, the EU Parliament, the Council of the EU and the European Commission) now have a 100 percent CO₂ emission reduction target by 2035 as their official position this is very likely to pass.

Direct incentives

In 2018, a study in the US found that there was a price premium for EVs (relative to equivalent vehicles) of between US$6,000 and US$17,000.[45] Although the price premium may have reduced in recent years, there is a lack of affordable EVs, as discussed above.

Introducing measures to reduce the up-front purchase prices and thus reduce the price differential between EVs and ICEVs is one of the more common policy options implemented internationally. These measures can include tax exemptions, such as proposed in the Bill, as well as rebates provided to the manufacturer or directly to the consumer.

Internationally, a number of countries have relatively significant rebates for the purchase of EVs, such as:

• Germany: up to €9,000 per vehicle (due to reduce in 2023 and phase-out in 2025)[46]
• France: €6,000 per vehicle (maximum value €45,000) due to be removed at the end of 2022
• United States: income tax credits of up to $7,500
• Japan: Subsidies reaching a maximum of around US$7,200 per vehicle
• Canada: A CAD$5,000 rebate is available for EVs up to a value of CAD$45,000 (CAD$55,000 for large vehicles).

Rebates are also available in a number of Australian states and territories, with $3,000 rebates available in New South Wales (for the first 25,000 EVs sold), Queensland (15,000 cars), South Australia (7,000 cars), and Victoria (4,000 cars). Additionally, the ACT is offering interest free loans of up to $15,000 for the purchase of an EV.[47]

In some of the countries with the highest levels of EV sales (such as in Europe and China) incentives are now being phased out. For example, in June 2022, the United Kingdom ended its subsidies for EVs, which had been GBP 1,500 per vehicle (down from GBP 2,500 per vehicle in December 2021).[48]

A potential risk of subsidy-based policies is that there can be income-based disparities in funding allocation. A study focused on the Californian rebate scheme found that the bottom 75% of median income earners received 38% of funding while the top 12.5% of income earners received a quarter of the total amount.[49]

Subsidies in Norway

Norway, the world leader in EV adoption, has been providing taxation exemptions for low‑emissions vehicles since at least the 1990s.[50] Norway’s approach is notable for two reasons; the breadth of the exemptions, and the apparent greater focus on taxing ICEVs (as opposed to subsidising EVs).[51]

In Norway, the taxes on ICEV drivers have been estimated to amount to an implicit carbon price of €1,370 per tonne of CO_2.[52] EVs are mostly exempt from these taxes and charges, which include registration fees, VAT (GST equivalent), road tolls, and parking fees. The combined effect of the multiple disincentives on ICEVs (and accompanying exemptions for EVs) is that for Norwegian consumers there is a clear value proposition for buying an EV. Surveys in Norway have found that 72% of EV drivers purchased their vehicle for economic reasons and only 26% for environmental reasons.[53]

Charging infrastructure

As outlined above, range anxiety and a concern about accessing charging infrastructure is a barrier for many people to purchasing an EV.

A recent study by the World Bank found that investing in charging infrastructure was a more cost‑effective means of increasing EV sales than providing purchase subsidies. The analysis found that average government spending of US$1,587 on charging infrastructure could induce one additional sale, whereas with subsidies, governments on average needed to spend US$10,872 to induce one additional sale.[54]

In Australia, the largest source of government funding for EV charging has been the states and territories. However, local governments and the Federal Government have also made investments in EV charging.[55] Funding the public EV charging network formed part of the Morrison Government’s Future Fuels and Vehicles Strategy and a series of charging projects were funded through the Australian Renewable Energy Agency (ARENA).[56] The ALP has committed, through its Driving the Nation program, to invest $39.3 million to deliver 117 fast charging stations at an average interval of 150km on major roads.[57]

Fleet purchases

Fleet purchases are a direct way for governments to invest in the EV market. Fleet purchases support the import of larger numbers of EVs into Australia. Additionally, due to the relatively quick turnaround in fleet vehicle ownership, fleet purchases support the development of a second-hand market in the medium term. The Australian Government has committed to the Commonwealth fleet being composed of 75% EVs and the Australian and New Zealand Governments indicated that they plan to coordinate their fleet purchases of EVs.[58]

Local measures

Measures at the local and city level can have significant impacts on EV uptake. These include the implementation of ‘low-emission zones’ that restrict access in certain central city areas to low-emission vehicles. Other measures include allowing EVs to use bus lanes and exemptions from parking fees.

A 2018 global analysis of EV policy and its impact on uptake by Wang, Tang, and Pan found that road priority measures (for example access to bus lanes), the density of chargers, and fuel prices had a significant positive relationship with market share, while direct subsidies were not found to be correlated to market share.[59]

Key issues and provisions

The key provisions of the Bill are contained in Schedule 1. This provisions in Schedule 1 amend the Act to exempt EVs from Fringe Benefits Tax (FBT).

FBT is paid by employers for the fringe benefits they provide to employees or their associates (for example, a relative of the employee). The Australian Taxation Office (ATO) defines a fringe benefit as ‘a “payment” to an employee, but in a different form to salary or wages’. The ATO adds that:

According to FBT legislation, a fringe benefit is a benefit provided in respect of employment. This means a benefit is provided to somebody because they are an employee.[60]

Car fringe benefits

One of the forms of fringe benefits is the provision of a car that is used (or available to be used) by an employee for private purposes (knowns as a car fringe benefit). Car fringe benefits are outlined in Part III, Division 2 of the Act.[61]

The provision of a car does not attract FBT if it is only used for work-related travel or only used by an employee for private purposes that are considered minor, infrequent, or irregular.[62]

The ATO advises that the following types of vehicles (including four-wheel drive vehicles) are considered cars for FBT purposes:

• motor cars, station wagons, panel vans and utilities (excluding panel vans and utilities designed to carry a load of one tonne or more)
• all other goods-carrying vehicles designed to carry less than one tonne
• all other passenger-carrying vehicles designed to carry fewer than nine occupants.[63]

However, some vehicles, including utes and panel vans designed to carry under 1 tonne, can be exempt from FBT under certain circumstances.[64]

Cars provided through salary sacrifice (salary packaging) and novated lease arrangements can also be liable for FBT.[65] Although FBT is payable by employers, many salary sacrifice packages include an agreement that the employer’s FBT liability is paid by the employee.[66] In this type of arrangement, the FBT exemption for zero and low emission vehicles could result in a benefit for the employee.

Exemption for zero and low emission vehicles

Section 8 of the Act outlines exemptions to the requirement to pay FBT related to car fringe benefits.[67] The Bill adds a new section 8A which exempts zero and low emissions vehicles. The Bill exempts BEVs, FCEVs and PHEVs. Hybrid vehicles (that is, HEVs) that cannot receive electricity from an external source (that is, they cannot be ‘plugged in’) are not eligible for the exemption.[68]

The exemption only applies to cars that are not liable for payments under the A New Tax System (Luxury Car Tax) Act 1999. In 2022–23, the luxury car tax threshold for fuel efficient vehicles is $84,916, so any cars priced above that threshold would not be eligible for the FBT exemption.[69]

Reportable Fringe Benefit Amount

Item 3 of Schedule 1 to the Bill prescribes that the exemption for low and zero emission cars does not lower an individual’s reportable fringe benefits amount (RFBA, under section 135P of the Act). So, effectively, the value of the electric car benefit will be added to the employee’s reportable fringe benefit amount. The Explanatory Memorandum explains the intention of this provision:

This is designed to ensure fairness in the tax and transfer systems, noting that the reportable fringe benefits amount is used to calculate and determine various liabilities and entitlements. These include calculating the Medicare levy surcharge, determining entitlement to certain tax offsets, and determining eligibility for certain family assistance payments.[70]

Deloitte reports that this is the ‘first exemption to have been denied RFBA exclusion under such a legislative provision’.[71] Deloitte also noted potential concerns that increasing an employee’s RFBA may act as a disincentive to the purchase of EVs:

Where cars are provided under a salary packaging arrangement, employees generally make post-tax contributions to reduce the FBT payable and in-turn the RFBA they receive. By not having the exemption apply for ZEVs, employees would need to continue to make contributions towards the cost of the vehicle in order reduce their RFBA. Arguably this is counterproductive to the federal governments intended outcome of increasing uptake of ZEVs.[72]

Limited applicability

How many cars will be eligible for the discount?

The Bill only affects vehicles which would be liable for FBT. Neither the Australian Bureau of Statistics, nor the Australian Taxation Office (ATO) appear to publish official data on the total number of vehicles deemed liable for FBT. Nevertheless, there do appear to be various estimates of the proportion of new cars that attract FBT.

In 2021, business fleets comprised 36% of total new vehicle sales.[73] A survey by the Australian Fleet Management Association reported that 47% of cars are garaged at employees’ homes. These vehicles would likely be considered available for private use by employees and attract FBT.[74] However, the majority of fleet vehicles are not garaged at private homes, and it is likely that many of these would not be considered available for private use and would not attract FBT.

The Parliamentary Budget Office’s (PBO) costing of the ALP Electric Car Discount election promise (which includes both the tax arrangements outlined in the Bill and the removal of tariffs for imported EVs) bases its costings on an assumption that 12% of new vehicles were purchased under salary packaging arrangements in 2020–21.[75] This assumption appears to be based on data obtained by the PBO from the ATO.

Although these vehicles purchased through salary packaging arrangements could theoretically benefit from the exemption, for some people there may be no appropriate zero or low emission vehicle currently available. In particular, this may be the case for people who will use the vehicle for private and work purposes. For example, there does not appear to be any utility vehicles from major manufacturers currently available that would be eligible for the exemption. Given this limitation, at least in the early years, it does not appear likely that all salary packaged vehicle sales will be EVs.

An alternative method of estimating the number of EV purchases this policy may support is to consider the Government’s funding allocation for the Bill. The Explanatory Memorandum states that the Bill is estimated to have a financial impact of $205 million over four years.[76] The breakdown of this funding is shown in Table 2. It may be possible that the financial impact includes the Government recouping funding in some way through other taxes. This possibility is, however, not raised in the Explanatory Memorandum and it does not appear likely that any additional revenue generated would be substantial.

It is difficult to estimate average total value of the exemption for each vehicle, as the FBT calculations vary greatly based on individual circumstances. However, there are two data sources which can provide general guidance to the exemption value per vehicle.

In his second reading speech, the Treasurer made the following comment:

If a model valued at about $50,000 is provided by an employer through this arrangement, our fringe benefits tax exemption would save the employer up to $9,000 a year. For individuals using a salary sacrifice arrangement to pay for the same model, their saving would be up to $4,700 a year.[77]

As it is likely that the majority of the vehicles that will access the scheme will make use of salary sacrificing arrangements the $4,700 figure is used in Table 2.

The modelling undertaken for the ALP by Reputex prior to the 2022 Federal Election made the following estimations of the value of the FBT exemption:

• $8,700 on a $50,000 model (such as a Nissan Leaf)
• $10,600 on a $60,000 model (such as a Hyundai Kona)
• $12,000 on a $70,000 model (such as a Tesla Model 3).[78]

The higher and lower estimates from Reputex are also included in Table 2.

Table 2:     Estimated number of vehicles likely to be made exempt from FBT

Estimated FBT exemption benefit per vehicle	Estimated number of vehicles exempted from FBT
	2022-23 (funding $20m)	2023-24 (funding $40m)	2024-24 (funding $55m)	2024-25 (finding $90m)
$4,700a	4,255	8,511	11,702	19,149
$8,700b	2,299	4,598	6,322	10,345
$12,000c	1,667	3,333	4,583	7,500

a) based on $50,000 vehicle salary sacrificed as per Treasurer’s second reading speech; b) based on $50,000 vehicle as per Reputex modelling; c) based on $70,000 vehicle as per Reputex modelling. Sources: Explanatory Memorandum, Treasury Laws Amendment (Electric Car Discount) Bill, 1; Jim Chalmers, Second Reading Speech: Treasury Laws Amendment (Electric Car Discount) Bill, House of Representatives, Debates (proof), 27 July 2022; Reputex Energy, The Economic Impact of the ALP’s Powering Australia Plan, December 2021, 30. All estimated vehicle numbers are Parliamentary Library calculations based on data from the listed sources.

As shown in Table 2, based on the Government’s forecast financial impact of the Bill, the number of vehicles expected to make use of the FBT exemption is relatively modest. For context, based on 2021 new vehicle sales, the estimated number of vehicles exempted in 2022–23 would account for between 0.16% and 0.40% of annual sales. By 2024–25 this would rise to between 0.71% and 1.80% of annual sales.[79]

These sale numbers are not insignificant, especially given the current size of the EV market. Nonetheless, it is likely that market forces (such as decreasing costs and increasing range and quality of EV models) will generate a much larger growth in EV sales than the policy changes outlined in the Bill. It also does not appear likely that this policy, alone, will have a transformative impact on the car market or generate the quantity of sales required to meet international climate targets.

The Government’s Driving the Nation program also includes the removal of tariffs on the importation of EVs. However, imports of motor vehicles are already tariff free for many nations due to Australia’s free trade agreements. Only around 19% of imported vehicles currently attract tariffs. This policy, therefore, also does not appear likely to generate significant additional sales.[80]

Who will be able to purchase an eligible car?

Although there is very limited data, it appears the majority of car buyers purchase a used vehicle.[81] As discussed above, there is a lack of affordable EVs and they are priced above comparable ICEVs. Given these two facts, it would appear likely that the financial benefits of this Bill will only be available to those who are willing to spend more than the average car buyer. Most likely, this will be those who have higher incomes.

The business-fleet focus of the Bill may result in cars being sold into the used market quicker than equivalent purchases by individuals. This may result in medium-term benefits for the used market, and flow-on benefits for those on lower incomes. These benefits, however, will not begin to eventuate for at least three to four years.

This disproportionate benefit for higher income earners is a common feature of most financial incentives for EV purchases (for example, rebates). Some of the other policy options, however, do not directly have this effect. For example, mandates to phase out the sale of ICEVs push manufacturers towards investing in EVs without directly benefitting higher income earners, and vehicle efficiency standards incentivise EVs while also improving the efficiency (and reducing the fuel use) of all new vehicles.

Although all financial incentives are likely to disproportionately benefit higher income earners, there are additional features of the Bill which may exacerbate this effect. Firstly, not all employees have access to the salary sacrificing arrangements to benefit from this Bill.

Additionally, as outlined in the pre-election modelling undertaken on behalf of the ALP, a car worth $70,000 attracts a larger FBT benefit than a car valued at $50,000.[82] Compared to a flat-rate rebate applied to all vehicles, a greater proportion of funding is being provided to more expensive models (and therefore higher income buyers). Further, as a proportion of the total value of the vehicle a flat-rate rebate results in a greater percentage discount for cheaper vehicles,[83] potentially providing greater incentive to the affordable end of the EV market.

An additional difficulty associated with this policy mechanism is its complexity. For larger businesses, this is unlikely to be a problem. For an individual considering the potential benefits of salary sacrificing a vehicle, calculating the impact of the exemption on their finances is not straightforward. In comparison, a flat-rate discount is easily understood and it seems likely that the same cost reductions applied as a flat-rate (as opposed to an FBT exemption) would have greater marketing power.

Reduction in the excise revenue and road user charging

A switch to EVs will result in a decline in fuel excise revenue paid to governments. The social costs of driving, however, are not totally removed by a transition to EVs. These socials costs include the impact of road accidents,[84] traffic congestion,[85] and road building and maintenance.

Given the forecast reduced excise revenue as EVs replace ICEVs on Australian roads, but continuing costs of driving there have been calls for systematic reform of how revenue is collected from motorists. Many experts advocate for the introduction of road user charging (RUC), where vehicles are charged based on distance, or the time travelled, rather than the fuel used.

In 2021, Victoria introduced a RUC of between 2 and 2.5 cents per km for EV drivers.[86] New South Wales will introduce a similar charge in 2027 or when EVs reach 30% of new cars sales (whichever comes first), while the South Australian Government has recently abandoned plans to also introduce a RUC.[87]

The Victorian policy has been heavily criticised by stakeholders, with a coalition of car manufacturers, industry and environmental groups describing it as the ‘worst electric vehicle policy in the world’.[88] In contrast, Infrastructure Partnerships Australia advocated that road user charging should be introduced early while it was relatively politically palatable.[89]

Currently, Australian drivers pay on average 4.6 cents per kilometre in excise, so even with the Victorian RUC, EV owners will have lower operational costs than ICE drivers.[90] In this scenario, the RUC, which based on Australian driving averages would cost drivers under $300 per year,[91] appears likely to be less of a disincentive than the upfront price of EVs. The Victorian policy combination of a rebate and a RUC could have the potential to incentivise EV sales while creating the foundation for a longer-term revenue stream to enable governments to recover some of the costs of driving.

Position of major interest groups

At an industry summit on 28 July 2022, representatives of 10 of Australia’s peak automotive associations reached an agreement on 25 principles. These principles included ‘embracing the electrification of the Australian motor vehicle fleet’.[92] The automotive organisations also agreed on a preference for CO₂ targets (that is, vehicle efficiency standards) rather than EV targets (that is, sales mandates), and an opposition to bans on the sale of ICEVs. The groups also made this comment on the Bill:

The organisations welcomed and congratulated the Albanese Labor Government for its decisive action in fulfilling its Fringe Benefits Tax exemption for Electric Vehicles promise. The legislation was in the first batch of 13 Bills introduced to the Parliament and will encourage the uptake of EVs once passed.[93]

The CEO of the Electric Vehicle Council, Behyad Jafari, welcomed the Bill, stating:

We’re seeing especially the FBT exemption is a quite valuable incentive to encourage particularly more fleets and novated leases to go electric.

I think it does quite a lot for the sector, of course it still leaves us with that ongoing challenge of getting more supply of vehicles and I think that’s the next big challenge that we’re discussing with the government now.

What’s natural and falls in line with the promises they’ve already made is to put in place a very strong fuel efficiency standard in line with the zero by 2050. That means having one that is in line with the type of standards we see in the United States and in the EU.[94]

Committee consideration

Senate Economics Legislation Committee

The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 2 September 2022. Details are available at the inquiry webpage.

Senate Standing Committee for the Scrutiny of Bills

At the time of writing the Senate Standing Committee for the Scrutiny of Bills had not considered the Bill.

Financial implications

The Bill is estimated to have a financial impact of $205 million over four years, see Table 2 for a breakdown of the financial impact for each year.[95]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[96] At the time of writing, the Parliamentary Joint Committee on Human Rights had not considered the Bill.

Concluding comments

Achieving international ambitions to reach keep global warming to below 1.5°C and reach net zero greenhouse emissions by 2050 will require deep emissions reductions in all sectors.

In the transport sector one of the key opportunities for emissions reductions is in transitioning the road transport fleet to electric vehicles. Achieving this transition at a speed aligned with international climate goals is unlikely to be possible without government intervention to incentivise the adoption of electric vehicles.

This Bill, which removes the need to pay fringe benefits tax on eligible electric vehicles, should result in significant cost reductions for eligible vehicles and encourage an increase in the sale of electric vehicles.

Most vehicle purchases do not attract fringe benefits tax and so the benefits of the Bill are not available to the majority of people purchasing a new vehicle. This raises some equity concerns, particularly as the Bill will provide larger discounts for more expensive vehicles.

Due to limiting the discount to vehicles attracting fringe benefits tax, the uplift in sales of electric vehicles due to the Bill will likely be relatively modest. The Government’s estimates of the financial impact of the Bill also appear to suggest that it will only be applied to a relatively small proportion of new vehicle sales.

On its own the Bill appears unlikely to result in the growth in sales of electric vehicles required to meet international climate targets or outlined in the Australian Labor Party’s pre-election modelling. Additional policy options, such as vehicle efficiency standards and direct sales rebates are also available and may result in greater growth in electric vehicle sales.

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[1].      Australian Labor Party, ‘Driving the Nation’; Australian Labor Party, ‘Electric Car Discount’.

[2].      ‘Electric vehicles’, Australian Renewable Energy Agency (ARENA).

[3].      Bureau of Infrastructure and Transport Research Economics (BITRE), Hydrogen as a Transport Fuel: Location Options for a Freight-based Limited Initial Deployment of Hydrogen Refuelling Stations, BITRE information paper, (October 2019), 3.

[4].      National Transport Commission, Carbon Dioxide Emissions Intensity for New Australian Light Vehicles 2020, (NTC, August 2021), 54; M. Costello, ‘VFACTS: Australia's 2021 new car sales detailed in full’, CarExpert, 6 January 2022; Electric Vehicle Council, State of Electric Vehicles, (March 2022), 6.

[5].      ‘National Greenhouse Gas Inventory Quarterly Update’, Department of Climate Change, Energy, the Environment and Water (December 2021).

[6].      Cameron Butler, Amandine Denis-Ryan, Paul Graham, Rob Kelly, Dr Luke Reedman, Iain Stewart, Tom Yankos, Decarbonisation Futures: Solutions, Actions and Benchmarks for a Net Zero Emissions Australia, (ClimateWorks Australia, March 2020), 45–46.

[7].      Robin Smit, ‘A Probabilistic Life Cycle Assessment Comparing Greenhouse Gas Emissions From Electric and Fossil-fuelled Vehicles in Australia’, Air Quality and Climate Change 55, no. 1 (March 2021): 36-37.

[8].      Robin Smit, ‘A Probabilistic Life Cycle Assessment Comparing Greenhouse Gas Emissions From Electric and Fossil-fuelled Vehicles in Australia’, Air Quality and Climate Change 55, no. 1 (March 2021): 36-37.

[9].      Tony Wood, Alison Reeve and James Ha, Towards Net Zero: Practical Policies to Reduce Transport Emissions, (Melbourne: Grattan Institute, July 2021), 17.

[10].    BITRE, Australia’s Light Vehicle Fleet, 1.

[11].    AustRoads, Decarbonisation of Road Transport Network Operations in Australia and New Zealand, Issues paper AP-C110-20, (Austroads, 2020), 23.

[12].    Victor Dial, ‘Taxpayers Taken for a Ride by Cash for Clunkers’, Weekend Australian, 8 January 2011, 12; Paul Pottinger, ‘”Cash for Clunkers” looks rusty’, Adelaide Advertiser, 11 December 2010, 27.

[13].    Wood, Towards Net Zero, 14.

[14].    Wood, Towards Net Zero, 16.

[15].    International Energy Agency, Global EV Outlook 2022, 4.

[16].    International Energy Agency, Global EV Outlook 2022, 16.

[17].    Electric Vehicle Council, State of Electric Vehicles, 5.

[18].    International Energy Agency, Global EV Outlook, 16, 17, 24.

[19].    International Energy Agency, Global EV Outlook, 99.

[20].    Bryn Walton, Jamie Hamilton, Geneviève Alberts, Saskia Fullerton-Smith, Edward Day and James Ringrow, Electric Vehicles: Setting a Course for 2030, (Deloitte, July 2020).

[21].    AustRoads, Future Vehicles Forecasts Update 2031, (AustRoads, 2021), 34.

[22].    Butler et al., Decarbonisation Futures, 94.

[23].    Wood et al., Towards Net Zero, 27.

[24].    Reputex Energy, The Economic Impact of the ALP’s Powering Australia Plan, (Reputex Energy, December 2021), 30.

[25].    Electric Vehicle Council and Carsales, Consumer Attitudes Survey 2021, 1.

[26].    Jordyn Beazley, ‘Sold Out: Why Australia Doesn’t Have Enough Electric Vehicles to Go Around’, The Guardian, 27 March 2022.

[27].    Electric Vehicle Council, State of Electric Vehicles 2022, 3.

[28].    Electric Vehicle Council and Carsales, Consumer Attitudes Survey 2021, 4.

[29].    Bureau of Infrastructure, Transport, and Regional Economics, Electric Vehicle Uptake: Modelling a Global Phenomenon, research report, 151, (Canberra: BITRE, 2019), 10.

[30].    Butler et al., Decarbonisation Futures, 47; Paul Graham and Lisa Havas, Electric Vehicle Projections 2021, (Canberra: CSIRO, 2021), 23.

[31].    Australian Bureau of Statistics, 2071.0.55.001: Census of Population and Housing: Commuting to Work - More Stories from the Census, 2016, 22 May 2018. 

[32].    Electric Vehicle Council and Carsales, Consumer Attitudes Survey 2021, 4.

[33].    S Wapplehorst, D Hall, M Nicholas, and N Lutsey, Analyzing Policies to Grow the Electric Vehicle Market in European Cities, (Berlin: International Council on Clean Transportation, February 2020).

[34].    Government of the United Kingdom, C0P26 Declaration on Accelerating the Transition to 100% Zero Emission Cars and Vans, policy paper, May 2022.

[35].    For Slovenia, this includes the sale of PHEVs (or any vehicle with less than 50g CO₂/km), for the other countries listed only zero-emission new vehicles will be permitted to be sold. International Energy Agency, Global EV Policy Explorer, May 2022, 18, 20, 21.

[36].    Shikha Rokadiya and Zifei Yang, Overview of Global Zero-emission Vehicle Mandate Programs, (International Council on Clean Transportation, April 2019), 2–7.

[37].    Emily Gibson, Developments in Australian Fuel Quality and Vehicle Emissions Standards: a Chronology, Research paper series, 2022–23, (Canberra: Parliamentary Library, 2022), 4.

[38].    Wood et al., Towards Net Zero, 22.

[39].    Gregor Erbach, CO₂ Emission Standards for New Cars and Vans: ‘Fit for 55’ Package, European Parliamentary Research Service, February 2022, 3; National Transport Commission, Carbon Dioxide Emissions Intensity for New Australian Light Vehicles, (NTC, August 2021), 2.

[40].    James Purtell, ‘Australians want to buy electric cars, but car makers say government policy blocks supply’, ABC, 21 April 2021.

[41].    The European Union states that the ‘In the Council of the EU, informally also known as the Council, government ministers from each EU country meet to discuss, amend and adopt laws, and coordinate policies. The ministers have the authority to commit their governments to the actions agreed on in the meetings.’ (European Union, EU Institutions: Council of the European Union).

[42].    Council of the European Union, ‘Fit for 55 package: Council reaches general approaches relating to emissions reductions and their social impacts’, press release, 29 June 2022. Kerstine Appunn, writing in Clean Energy Wire (29 June 2022) states that: ‘Germany complicated matters by introducing the option that e-fuel driven cars should be considered possible in the climate-neutral 2035 car fleet. As a compromise, the 2035 combustion engine ban was kept – and agreed to by the EU Council – but the ministers asked the European Commission to assess in 2026 whether CO2-neutral fuels could also comply with EU law.’

[43].    Kerstine Appunn, ‘EU ministers to reach agreement on climate bills, zero emission cars by 2035’, Clean Energy Wire, 29 June 2022. The Social Climate Fund will be used to ameliorate the impacts of carbon pricing in the transport and heating sectors.

[44].    Once the European Commission releases a proposal, it goes to the European Parliament, which includes 705 directly elected members, and the Council of the EU, comprised of the 27 Member States. For a European Commission proposal to become law, it must be approved by both the European Parliament and Council (European Parliament, ‘The European Parliament: organisation and operation’, Fact Sheets on the European Union). Then all three political institutions (the EU Parliament, the Council and the Commission) meet together, in what is informally called trilogues, to negotiate the final text of the law (Micaela Del Monte, ‘Understanding trilogue: Informal tripartite meetings to reach provisional agreement on legislative files’, Think Tank: European Parliament, May 2021).

[45].    John Graham, The Global Rise of the Modern Plug-in Electric Vehicle (Cheltenham: Edward Elgar Publishing, 2021), 40.

[46].    International Energy Agency, Global EV Outlook 2022, 64.

[47].    Electric Vehicle Council, State of Electric Vehicles 2022, 22–44.

[48].    Michelle Lewis, ‘The UK scraps its £1,500 new EV grant a year early – Here’s why’, Electrek, 15 June 2022.

[49].    S. Guo and E. Kontou, ‘Disparities and Equity Issues in Electric Vehicle Rebate Allocation’, Energy Policy 154 (July 2021): 6.

[50].    Graham, Modern Plug-in Electric Vehicle, 399.

[51].    L. Fridstrom, ‘The Norwegian Vehicle Electrification Policy and its Implicit Price of Carbon’, Sustainability 13, no. 3 (2021): 12.

[52].    Fridstrom, 12.

[53].    Graham, Modern Plug-in Electric Vehicle, 401–402.

[54].    Shanjun Li, Binglin Wang, Muxi Yang, Fan Zhang, The Global Diffusion of Electric Vehicles : Lessons from the First Decade, Policy research working paper, 9882, (Washington, DC: World Bank, 2021), 13–14.

[55].    Scott Dwyer, Claudine Moutou, Kriti Nagrath, Joseph Wyndham, Lawrence McIntosh, and Dean Chapman, An Australian Perspective on Local Government Investment in Electric Vehicle Charging Infrastructure’, Sustainability 13, no. 12 (2021): 6590.

[56].    Australian Renewable Energy Agency, ‘Projects: Electric Vehicles’; Department of Industry, Science, Energy and Resources (DISER), Future Fuels and Vehicles Strategy, (Canberra: DISER, November 2021).

[57].    Australian Labor Party, ‘Driving the Nation’.

[58].    Chris Bowen, ‘Transcript of Q and A: National Press Club, Canberra’, media release, 29 June 2022.

[59].    N. Wang, L. Tang, and H. Pan, ‘A Global Comparison and Assessment of Incentive Policy on Electric Vehicles’, Sustainable Cities and Society 44, (November 2018): 602.

[60].    Australian Taxation Office (ATO), ‘Fringe benefits tax – a guide for employers’, Chapter 1.

[61].    Fringe Benefits Tax Assessment Act 1986, Part III, Division 2.

[62].    Fringe Benefits Tax Assessment Act 1986, paragraph 8(2)(b).

[63].    ATO, ‘Fringe benefits tax – a guide for employers’, Chapter 7.1.

[64].    ATO, ‘Fringe benefits tax - a guide for employers’, Chapter 7.6.

[65].    ATO, Fringe benefits tax – a guide for employers, Chapters 1.8, 7.7.

[66].    Tax Store Australia, ‘Understanding novated leases, FBT, and claims for work expenses’, n.d.

[67].    Fringe Benefits Tax Assessment Act 1986, section 8.

[68].    Treasury Laws Amendment (Electric Car Discount) Bill 2022, item 1 of Schedule 1.

[69].    ATO, ‘Luxury car tax rate and thresholds’, ATO website, 1 June 2022.

[70].    Explanatory Memorandum, Treasury Laws Amendment (Electric Car Discount) Bill 2022, 7.

[71].    Deloitte, Tax Insights: Government Introduces Legislation to Encourage Electric Vehicle Adoption, (Deloitte, 27 July 2022), 4.

[72].    Deloitte, Tax Insights, 4.

[73].    378,506 business vehicles out of 1,049,831 total new car sales. Costello, VFACTS.

[74].    Australian Fleet Management Association, Electric Vehicles in Business Fleets Report, October 2020, 8. Please note that due to license conditions we cannot link this report. Anna Mortimore, ‘Why Labor’s new tax cut on electric vehicles won’t help you buy one anytime soon’, The Conversation, 1 August 2022.

[75].    Parliamentary Budget Office (PBO), Powering Australia – Electric Car Discount (2022 Election commitments report: ECR124), 3.

[76].    Explanatory Memorandum, Treasury Laws Amendment (Electric Car Discount) Bill 2022, 1.

[77].    Jim Chalmers, Second Reading Speech: Treasury Laws Amendment (Electric Car Discount) Bill, House of Representatives, Debates, (proof), 27 July 2022, 22.

[78].    Reputex Energy, The Economic Impact of the ALP’s Powering Australia Plan, December 2021, 30.

[79].    Based on total new vehicle sales of 1,061,975. This figure is based on the 1,049,831 sales reported by VFACTs with an addition of 12,144, which is the Parliamentary Library estimation of Tesla sales based on a comparison of VFACTs and Electric Vehicle Council published figures. Sources: M. Costello, ‘VFACTS: Australia's 2021 new car sales detailed in full’, CarExpert, 6 January 2022; Electric Vehicle Council, State of Electric Vehicles 2022, 5.

[80].    Federal Chamber of Automotive Industries, Pre-Budget Submission 2020–21, 3.

[81].    DingGo, ‘Car Sales Figures and Statistics in Australia’, 3 March 2021.

[82].    Reputex Energy, The Economic Impact of the ALP’s Powering Australia Plan, December 2021, 30.

[83].    For example, a $5,000 rebate applied to a $40,000 vehicle is a 12.5% discount but only a 6.25% discount when applied to a $80,000 vehicle.

[84].    Australian Automobile Association, Cost of Road Trauma in Australia, (AAA, September 2017), 9.

[85].    Infrastructure Australia, Urban Transport Crowding and Congestion: the Australian Infrastructure Audit 2019, (IA, June 2019), 7.

[86].    Josh Gordon, ‘Pallas rejects federal grab for EV road cash’, Saturday Age, 11 December 2021, 7.

[87].    Tim Nicholson, ‘Owning an electric car in South Australia just got a bit cheaper as new government drops road-user tax for EVs, plug-in hybrids’, CarsGuide, 23 May 2022.

[88].    Royce Kurmelovs, ‘”The worst electric vehicle policy in the world”: automotive coalition pans Victoria's EV tax’, The Guardian, 22 April 2021.

[89].    Infrastructure Partnerships Australia, Road User Charging for Electric Vehicles, 2019, 2.

[90].    Philip Laird, ‘Distance-based road charges will improve traffic — and if done right won’t slow Australia’s switch to electric cars’, The Conversation, 6 January 2021.

[91].    Calculation from source above. Average driving distance of 11,100km x $0.025.

[92].    ‘Automotive organisations reach a historic agreement on national fleet transition’, joint media release by peak national state and territory automotive organisations, 28 July 2022.

[93].    Automotive organisations reach a historic agreement on national fleet transition, 28 July 2022.

[94].    Mike Costello, ‘Australian Government EV discount bill enters parliament’, CarExpert, 28 July 2022.

[95].    Explanatory Memorandum, Treasury Laws Amendment (Electric Car Discount) Bill 2022, 1.

[96].    The Statement of Compatibility with Human Rights can be found at page 9 of the Explanatory Memorandum to the Bill.

 

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