We agree with the dissenting report of the Deputy Chair and make these additional comments.
The Treasury Laws Amendment (Electric Car Discount) Bill 2022 provides most of its benefits to the well off, it is not clear that it will lower Australia’s emissions and it distorts the vehicle sector by exacerbating the tax beneficial status of electric vehicles (EVs) compared to internal combustion engine (ICE) vehicles.
This bill exempts from Fringe Benefits Tax (FBT) cars that are zero or low emissions vehicles (ZLEVs) held by the provider and used by or made available for private use of employees. FBT is levied at a taxpayer’s marginal tax rate so the higher someone’s taxable income is, the more benefit they would receive from this exemption.
A worked example helps make this point. According to the Australian Taxation Office’s FBT calculator, an electric car worth $50,000 would provide an annual fringe benefit of $9,972.60. For someone earning over $180,000, the exemption contained in this bill would reduce their tax payable by $4487.67. However, a person earning just $40,000 would avoid tax of just $1,894.80. Therefore, under this bill a rich taxpayer has more than double the benefit than the taxpayer on a low income.
A lack of affordability is one of the key reasons people do not buy an EV. It makes little sense then to design a policy that benefits those who would not have a major issue in affording a car. The government has not provided evidence that such a policy would result in a significant increase in additional electric cars being sold.
There are also questions about how much EVs reduce carbon emissions. A recent report by Volvo demonstrated that an EV would need to be driven for 110,000 kilometres to “break-even” with the carbon footprint of an equivalent of an internal combustion engine (see Figure 1.1 below). Given that the average Australian car is driven for 13,300 kilometres a year, it would take more than eight years for the higher carbon emissions of electric vehicle manufacturing to offset the higher emissions of using an internal combustion engine.
This is because the manufacture of an EV generates significantly more carbon emissions than the manufacture of an internal combustion engine vehicle. Volvo’s reports state that the manufacture of an EV generates 70 per cent more emissions than the internal combustion equivalent.
This figure is based on electricity coming from an electricity mix consistent with the global average. Australia’s electricity has a carbon intensity above the world average, so the break-even kilometres for Australia would likely be higher than Volvo’s calculations. The government has presented no modelling about what the carbon impact of EVs in Australia would be compared to the use of ICE vehicles. Hence, there is no guarantee that this bill will lower carbon emissions.
Finally, EVs are already provided with tax favoured treatment in Australia because they do not pay the fuel excise. Fuel excise helps to pay for roads that all cars (including EV) use. In this sense, EV owners are already being provided with a free ride. Therefore, it is not clear why further tax benefits should be provided in a way that further distorts consumer decision making on the choice of vehicle type.
The government has not presented a cogent argument for how this bill will provide environmental or other benefits and therefore the bill should be opposed.
This bill is a regressive bill designed to target those that are well off, as EVs are currently more expensive than their equivalent combustion engine equivalents.
Senator the Hon Matthew Canavan
Nationals Senator for Queensland
Nationals Senator for Queensland
Nationals Senator for New South Wales
Senator the Hon Bridget McKenzie
Nationals Senator for Victoria
Senator Jacinta Nampijinpa Price
Nationals Senator for the Northern Territory
Nationals Senator for New South Wales