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.
Introductory Info
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.
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:
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 CO2.[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.