Introduction
2.1
This chapter examines stakeholder views on the provisions of the Treasury Laws Amendment (Electric Car Discount) Bill 2022 (the bill). It draws on both the submissions received, as well as evidence heard by the Senate Economics Legislation Committee (the committee) during the public hearings in Melbourne on 23 August 2022 and in Canberra on 25 August 2022.
2.2
This chapter provides an indicative, although not exhaustive, account of the key issues relating to the bill and concludes with the committee’s views and recommendations on the bill.
Overall support for the bill
2.3
All submissions to the inquiry supported the bill and its intent to establish an Electric Car Discount to encourage a greater take up of electric vehicles (EVs). Submitters argued that by making EVs more affordable through a Fringe Benefits Tax (FBT) exemption, Australia’s carbon emissions from the transport sector would be reduced and this would assist Australia to meet its emissions reduction goals.
2.4
For example, the Australian Finance Industry Association (AFIA) supported the intent of the bill as lowering emissions from the transportation sector is an essential part of meeting the government’s target to lower emissions by 2030.
2.5
Similarly, the Australian Electric Vehicle Association (AEVA) ‘keenly supports the proposed EV exemption in the Act’ and noted its belief that the measure would help accelerate EV uptake in Australia as businesses play a key role in driving demand for these vehicles’.
2.6
The ACT Government highlighted that the proposed amendments will ‘serve to remove financial disincentives that currently act as a barrier to the purchase of zero emissions vehicles (ZEVs) and slow our progress towards achieving net zero emissions’.
2.7
The Australia Institute also highlighted research indicating widespread public support for government policies to drive greater EV adoption:
The Australia Institute’s polling shows that Australians strongly support policy incentives that make electric vehicles more affordable and accessible. There is a clear appetite for Australia to take more decisive steps to make the transition to zero-emission transport, which will in turn reduce our reliance on imported oil.
2.8
Accordingly, The Australia Institute considered that the bill is a ‘welcome first step in the electrification of road transport in Australia’.
2.9
Many stakeholders considered that supporting business fleets to transition is a fast way to improve EV uptake. Stakeholders also noted that removal of the FBT on EVs below the Luxury Car Tax (LCT) threshold would make these EVs cheaper for employers and employees and would eventually lead to an increased supply of EVs into the secondary car market.
2.10
For example, Mitsubishi Motors Australia Limited (Mitsubishi Motors), in full support of the bill, also outlined various other flow on effects that the measures will have:
Mitsubishi Motors commends the Federal Government for taking action to make electric vehicles more affordable through programs, such as the bill, to reduce operating costs for electric vehicles within fleets which should in turn increase the number of affordable low/no emission vehicles which enter the Australian second-hand market.
2.11
The National Automotive Leasing and Salary Packaging Association (NALSPA) agreed that the FBT exemption would improve EV uptake:
Ultimately, we think, given the widespread application of the fringe benefits tax and the use by businesses, employees and employers, it can make a significant difference in terms of reducing our emissions and seeing a far greater take-up in ZLEVs [zero and low emission vehicles].
2.12
In its support for the bill, the AEVA argued:
…many firms are enthusiastic about adding zero emission vehicles to their fleets but are put off by the current tax implications and exempting EVs from the FBT makes the provision of a work-related EV to employees far more palatable and thus helps drive further uptake of EVs in Australia.
2.13
The Australia Institute summarised the position of many stakeholders, submitting that the bill:
…will provide an incentive for employers to assist their employees or associates purchase EVs, transition their fleets, and help create a second hand EV market.
2.14
Various stakeholders also emphasised the benefits that may accrue to individuals because of higher EV uptake, including cost of living relief through cheaper running costs and potential personal use of fleet vehicles. Indeed, UnitingCare Queensland highlighted that the proposed FBT exemption may mean employers would be more inclined to allow employees to access fleets for personal use where previously this would not have been allowed.
Specific matters raised by stakeholders
2.15
Despite supporting the general intent of the bill, several inquiry participants noted the scope and design of the FBT package could be amended to broaden the remit of the bill. The key recommendations received by submitters are discussed below.
Effectiveness of the package in increasing EV uptake
2.16
Some stakeholders expressed concerns that the measure might not realise greater EV uptake in Australia and would not improve the issue of affordability and accessibility of EVs to a broad range of consumers.
2.17
For example, Professor Miranda Stewart contended that the design of the subsidy as a new exemption would impact ‘a rather narrow class of employee beneficiaries and provides the largest benefit to the highest income earners’.
2.18
Dr Anna Mortimore argued that the FBT exemption would not address the cost gap between electric cars and higher emissions vehicles which will continue to prevent the uptake of EVs. Indeed, in her evidence to the committee, Dr Mortimore noted that the current price differential between the ZEV and Internal Combustion Engine (ICE) variants of a Hyundai Kona was approximately $30,000 (or double the price) and an FBT exemption in isolation was unlikely to persuade a prospective purchaser to choose the ZEV variant. Dr Mortimore argued that other polices, such as those discussed later in this chapter, are required to address this cost differential.
2.19
Various groups recommended that the LCT threshold for accessing the FBT exemption be either removed or increased, arguing that there are few EVs on the Australian market under the LCT in Australia. Summarising this point, the Federal Chamber of Automotive Industries (FCAI) submitted:
The FCAI strongly believe that excluding EV’s above the Luxury Car Tax will seriously hinder the effectiveness of the legislation in driving faster adoption of EVs in Australia, as EV’s above the threshold make up a significant segment of the overall ZLEV market.
2.20
However, the view that the FBT exemption would not achieve the projected uptake of EVs, as well as concerns that it would not reduce the cost of electric cars for all Australians, was not a view that was universally shared by all stakeholders.
2.21
For example, NALSPA argued that the measure will have a positive impact on the uptake of EVs by creating ‘broader and wider appeal’ for electric cars ‘given that this will be a very prudent way of acquiring a low or zero emissions vehicle’. NALSPA highlighted the significant interest from clients in the proposed FBT exemption and drew on Deloitte modelling to indicate the impact the measure could have on EV uptake:
There is a lot of interest from the client and customer base around this particular initiative. There is a lot of what I call pent-up demand…Whilst we've got certain comments around the bill, we are keen for it to be finalised and become law as quickly as possible so we can begin to work with our clients and customers on their transition.
…
On the work we submitted to the committee, it went through modelling we had done by Deloitte. Their view was that, assuming this went out to at least 2030, it would lift the take-up of battery, electric and plug-in hybrid [vehicles] by around 15 per cent by 2030, which, based on what the Australian population have purchased today, would be around 150,000 vehicles per annum. That assumes we've got greater supply in terms of the timeline and also greater range in terms of more SUVs, dual cabs et cetera. Ultimately, we think, given the widespread application of the fringe benefits tax and the use by businesses, employees and employers, it can make a significant difference in terms of reducing our emissions and seeing a far greater take-up in ZLEVs.
2.22
Similarly, the Institute of Public Accountants (IPA) noted that:
…this initiative should lead to an increase in the take up of EV’s in Australia by improving the cost effectiveness of this option through the removal of the FBT impost. This is particularly attractive for the corporate leasing or salary packaging segment of the market, and this will have the added benefit of creating a future supply for the secondary market.
2.23
AEVA agreed that the package would encourage business owners to purchase EVs and this would also have the added benefit of increasing supply of electric cars on the second-hand market and undo a disincentive for purchasing EVs:
One of the biggest buyers of electric vehicles is fleets in businesses. By changing the FBT rules, it means you're encouraging those fleets to start to pick up EVs. That will bring potentially a quite large buyer market to the EV suppliers—a very steady and large group of buyers—which means we can push electric vehicles into the market…
…
It will also undo a disincentive. Right now, the FBT rules mean it's artificially more cost-effective to buy a petrol or diesel vehicle using this kind of FBT salary sacrificing. … The way it's structured right now means the tax structure is incentivising a behaviour we don't want—that is, to buy more petrol vehicles—and disincentivising a behaviour we do want—that is, to buy electric vehicles. We'd like to remove that disincentive so we can make an EV more popular to the fleets of small business.
2.24
Mr David Fernandes from NALSPA further argued that the FBT exemption would also assist small business owners and their employees to access EVs:
…there's nothing in the bill that doesn't preclude small business. There is often a perception that these kinds of services or opportunities are only available to big business, the government sector and people like that. While, yes, our company, our members here, does focus on medium-sized businesses and above, there are several small businesses that will offer their staff a novated lease… Small businesses are critical. It's really important to make sure they understand that this is a piece of legislation for them as they try to care about their environment and make a transition, whether it's in dedicated EVs or plug-in hybrids.
Inclusion of low emission Plug-in Hybrid Electric Vehicles (PHEVs)
2.25
There was considerable debate between submitters as to whether only ZEVs should be given a FBT exemption, or other types of low emissions vehicles should also be included—specifically Plug-in Hybrid Electric Vehicles (PHEVs).
2.26
Many submitters argued that PHEVs should be excluded from the bill on the basis that they would not effectively lower carbon dioxide emissions from the transport sector.
2.27
For example, Evie Networks argued that PHEVs should be excluded from the FBT exemption:
Evie Networks submit that exempting low emission electric vehicles (Plug-In Hybrid Electric Vehicles) from FBT would not represent an efficient use of taxpayers’ funds in terms of helping to achieve the Government’s policy of reducing Carbon Emissions by 43 per cent by 2030 and reaching the Net Zero Emissions Target by 2050 as the emission reduction performance of the real-world operation of these vehicles is very low in comparison with Battery Electric Vehicles.
2.28
Greenpeace Australia Pacific (Greenpeace) also argued that only ZEVs should be eligible for FBT exemptions:
…the use of an internal combustion engine should disqualify their inclusion in any discount scheme that is centred on electric and ZEVs. Further, their inclusion into any such policy ‘may artificially prolong the use of internal combustion engines in the transport sector; thus, protracting the market life of fossil-fuels…
By eliminating the inclusion of hybrid-electric vehicles from the proposed amendments, pure-EVs could be prioritised more greatly, and more specific policies could be enacted that focus on reducing the cost of EVs, while addressing long standing EV supply issues.
2.29
By contrast, other submitters advocated for the inclusion of PHEVs given Australia’s low starting base, underdeveloped charging infrastructure, the practical reality of using battery EVs for fleet use, and the average distances travelled by people living in regional Australia.
2.30
Mr James Voortman, Chief Executive Officer of the Australian Automotive Dealer Association (AADA), highlighted the important role that PHEVs can play in managing the transition to greater EV adoption, particularly as PHEVs are currently more affordable than battery EVs:
I think there is a very important role for those plug-in hybrids to play. We are seeing sales of those vehicles in the US increasing at the moment. As others have mentioned, this is a bridging technology. We are a way behind a lot of the world, and this is a technology that will help consumers become comfortable before they take the next step into pure electric vehicles.
2.31
Mitsubishi Motors also outlined other benefits from including PHEVs in the scope of the bill:
The other benefits of enhanced PHEV uptake include a raft of public health benefits from lower tailpipe emissions and improved equity for Australia’s regional and rural areas. PHEV can help regional and rural areas bypass the higher petrol and diesel prices charged in more remote areas. During bushfires, floods and other natural disasters, PHEVs will enable regional and rural areas to have fast and continuous access to reliable backup power that can be deployed where and when it is needed.
2.32
Some stakeholders recognised the significant level of fleet sales in Australia, and the role that this measure will have to increase the uptake of ZLEVs. That said, fleet ZLEVs must be fit for purpose and research suggests that fleet managers are reluctant to embrace ZEVs at this stage due to concerns about battery range, time to charge and overall cost. In terms of overall cost, UnitingCare Queensland indicated that the use of passive hybrids as fleet vehicles has evolved to the point where they now provide ‘a better return on investment than a non-hybrid vehicle.
2.33
UnitingCare Queensland (UnitingCare) also highlighted the supply chain challenges currently being faced by vehicle manufacturers and the potential constraints on the availability of all types of EVs over the next few years. Accordingly, they welcomed the inclusion of PHEVs in the measure at this point in the transition to EVs.
Broader policy reform
2.34
Several stakeholders noted the establishment of the FBT exemption is only one element in solving the problem of EV affordability and increasing the uptake of EVs to reduce carbon emissions from the transport sector. The development of a National Electric Vehicle Strategy and the adoption of better fuel efficiency standards were raised as options for broader policy reform.
2.35
Indeed, The Australia Institute argued that the FBT exemption ‘is one of many policies that the government can bring forward and the parliament can approve’.
Fuel efficiency standards
2.36
While other changes will expand EV use, a number of stakeholders articulated that this bill is an important first step in the right direction of introducing polices that assist Australia to meet its emissions reduction goals. Submitters argued that another key step is the adoption of mandatory fuel efficiency standards to enhance the uptake of EVs and complement the provisions of this bill.
2.37
Climateworks submitted that the absence of a national fuel efficiency standard is a significant barrier to EV uptake in Australia and is critical to meeting uptake targets:
The best tool to address this is setting federal fuel efficiency standards. Climateworks suggests setting this in the order of 95g CO₂/km by 2024, with a trajectory of reducing to 0g CO₂/km by 2035, and regular reviews to ensure it is set at the right rate to increase supply and at the pace with global trends.
2.38
Dr Anna Mortimore stated that fuel efficiency standards are necessary to reduce the price premium of EVs and increase supply into the Australian market:
…we’ve got to bring in a supply of more affordable EVs. The electric vehicle car manufacturers have made it quite clear that they are supplying EVs to countries that have regulatory [fuel] standards. We don’t have standards, so we are at the bottom of the queue, and we will stay there until standards are introduced.
2.39
The Australia Institute agreed that a national fuel efficiency standard is a key element in driving the uptake of EVs in Australia:
If we want to drive that up, if we want to change those decisions, we need to bring in mandatory fuel efficiency standards. That is why the announcement by Minister Bowen on Friday was a welcome one—that the electric vehicles strategy will include a policy on mandatory fuel efficiency standards. Our recommendation would be that that should be a robust fuel efficiency standard in line with that of Europe, which is best practice.
2.40
The Minister for Climate Change and Energy, the Hon Chris Bowen MP, put this issue on the national agenda at the National Electric Vehicle Summit held in Canberra in August 2022. The Minister argued that vehicle fuel efficiency standards could help improve the supply of electric vehicles into the Australian market, which in turn will help address the cost-of-living impacts of inefficient cars and to reduce emissions from the transport sector.
National Electric Vehicle Strategy
2.41
Rather than encourage EV uptake through singular measures, a number of stakeholders considered that an overarching, comprehensive National Electric Vehicle Strategy is required to coordinate and accelerate the uptake of EVs in Australia.
2.42
For example, Mr Richard Dudley, CEO of the Motor Trades Association of Australia (MTAA) stated that the government’s plan to develop and implement a National Electric Vehicle Strategy is ‘critically important’.
2.43
This view was also shared by several stakeholders including the AADA, the ACT Government, and The Australia Institute who stated that the establishment of the FBT exemption package should be accompanied by a federally-led systematic approach to develop a more comprehensive National Electric Vehicle Strategy and implement practical policies that will allow more Australians the opportunity to purchase a ZLEV.
2.44
Stakeholders also noted the disparity between polices at various levels of government and advocated for a national approach that brings all stakeholders together on the same path.
2.45
Ms Rachel Lynskey explained the value of an overarching federal policy:
What this state-by-state approach has meant is that there is a patchwork of approaches and that it's really vital at this time to have the federal government stepping into this space and increasing its interest to consolidate that work to ensure there aren't gaps and there is consistency for both consumers and industry to be supporting an EV transition.
2.46
On this point, AADA argued:
It's so important that we have a federally led approach which brings the states and territories and the industry onboard so that we get this right in terms of incentivising these vehicles to come online and also preparing everyone else who needs to be prepared, such as emergency services, such as building codes and every other element that's going to be touched by this.
2.47
Both the Department of the Treasury (Treasury) and the Department of Industry, Science and Resources (DISR) indicated that the bill is part of a suite of policies to improve the trajectory of EV uptake, including the development of a National Electric Vehicle Strategy.
2.48
In its evidence to the committee, Treasury stated:
…the government has a suite of measures and signalled the National Electric Vehicle Strategy announcements on Friday as well. We're really looking forward to consultation on that strategy and seeing where that leads.
2.49
Furthermore, the DISR contended:
We are supportive of initiatives that will make EVs more accessible and affordable for Australians, and we would anticipate that this bill will be one part… of a broader strategy that will drive supply into the market.
Three-year review
2.50
The bill contains a provision for a three-year review to monitor progress, make any improvements and ensure the bill is working as intended. Some stakeholders voiced their support for the proposed review of the FBT exemption three years after its implementation.
2.51
For example, Greenpeace submitted that ‘…frequent reviews are integral in ensuring that the proposed changes have the desired impact on increasing EV sales’.
2.52
Dr Diane Kraal commented on how reviews of similar policies have operated internationally:
Certainly there should a review in three years… In other legislations quite often there are reviews, and terms of references are drawn up, and an investigation and a report is the result. It's good practice because basically that's what the Europeans have been doing all these years. They've supported the uptake of electric vehicles through their tax system and rebates and subsidies, and they have constantly reviewed the effectiveness of that sort of support. Norway is a good example.
2.53
Dr Anna Mortimore felt the review should be yearly rather than triennial:
It is recommended that FBT EV exemption be reviewed yearly to ensure that there is a satisfactory uptake of EVs, by employees under the salary sacrifice arrangement, and that it should not just benefit high end employees. Annual targets should be set and reviewed.
2.54
Treasury considered that undertaking a review at the three-year mark would be appropriate to assess the effectiveness of the FBT exemption:
The government's policy decision was to make this an ongoing FBT exemption, but… there will be a review after three years and that review will give an opportunity for government to consider how the proposal is working and whether or not any changes are required.
Committee view
2.55
The committee would like to thank all the stakeholders who took the time to submit to the inquiry and appear at the public hearings.
2.56
The committee welcomes the strong support for the intent of the bill to encourage the uptake of EVs in Australia. In particular, the committee notes that there was no opposition to the bill, only calls to further extend the provisions contained within it and to consider broader measures. The committee appreciates the time taken by submitters to recommend further measures to improve the bill. Indeed, these recommendations may form a foundation for further policy development.
2.57
The committee notes that the removal of the FBT exemption for EVs under the LCT threshold will mean that employers and fleet managers will be incentivised to purchase more EVs. Not only will this improve EV uptake, but it will also eventually increase the number of EVs in the second-hand car market as those fleets are retired and sold-off.
2.58
The committee also acknowledges the debate about the inclusion of PHEVs in the FBT exemption. To ensure that fleet EV purchases are fit for purpose and can satisfy business needs, the committee considers that the inclusion of PHEVs in any FBT exemption is necessary at this time. PHEVs have an important role to play in the early phase of the transition from internal combustion engines to pure battery EVs.
2.59
The committee considers that the FBT exemption for EVs under the LCT threshold has the potential to benefit small businesses and individual employees in the middle to low-income brackets. Indeed, the Treasurer, the Hon. Dr Jim Chalmers MP, Second Reading Speech estimated employers could save $9,000 per year with the FBT exemption, while individuals using salary sacrifice arrangements could save $4,700 per year. Further, there may be additional benefits from using FBT arrangements to access ZLEVs given the relatively high resale values of these models in the secondary market.
2.60
The committee notes the three-year review included in the bill and the support it has received from submitters and witnesses. This review will give flexibility to the legislation as it will enable the effectiveness of the package (and any related policies) to be monitored and provide an opportunity to make any necessary and appropriate changes in a timely manner.
2.61
The committee further notes calls from submitters that the bill should be passed promptly given its crucial role in increasing the affordability of EVs and encouraging greater uptake of EVs by Australian road users. The need to act now to reduce emissions from the transport sector is a fundamental element in the government’s broader action on climate change. The committee notes the policy uncertainty that has hindered the increase in EV uptake over the past six years and welcomes recent government announcements that it is considering further measures to increase the uptake of EVs in Australia, including a National Electric Vehicle Strategy and mandatory fuel efficiency standards.
2.62
The committee considers the bill to be an early but important step in the transition towards greater use of EVs across the transport sector, including in rural and regional Australia. Increasing the number of EVs in commercial fleets will have important flow-on effects to the second-hand market and encourage greater acceptance of EVs by Australians more generally. Recognising the wide-ranging support the bill has received, the committee has no reservations in recommending that the bill be passed.
2.63
The committee recommends that the bill be passed.
Senator Jess Walsh
Chair
Labor Senator for Victoria