Dubbed by some as the “world’s worst electric vehicle policy”, Victoria introduced a per-kilometre charge on electric vehicles and plug-in hybrids in 2021. EV drivers were so riled up about the charge that they headed to the High Court to fight it. We’re now awaiting the High Court’s decision, which will determine whether state governments have the constitutional authority to impose the tax.

But is it really such a bad policy? And, more broadly, why is Australia so far behind other countries in making the switch from high-polluting petrol and diesel vehicles to EVs?

In this latest Grattan Podcast, our transport experts Marion Terrill and Natasha Bradshaw discuss the implications of the High Court case for revenue-raising, electric vehicle take-up, and the future of road-user charging.


Natasha Bradshaw: Hello, and welcome to the Grattan Institute podcast. I’m Natasha Bradshaw, an associate in the Transport and Cities program. Dubbed by some as the world’s worst EV policy, Victoria in 2021 introduced a per kilometer charge on electric vehicles. Currently charged at 2. 8 cents per kilometre for electric vehicles and 2.3 cents per kilometre for plug in hybrids.

EV owners are so up in arms about this new charge that they headed to the High Court to fight it. And now we’re awaiting the results of the case. So what will the case come down to? And is it too soon to introduce charges on EVs when we’re trying to promote their uptake? Or do we need to make sure all drivers pay for their use of our roads?

Here to discuss these questions with me is Marion Terrill, Transport and Cities Program Director. So Marion, no one likes paying more tax, but most of us don’t get to take our complaints to the high court. What has EV drivers so riled up and what’s their legal argument here?

Marion Terrill: Hi Tash, so EV drivers fundamentally I think what they say about what they’re doing is that they feel that they’re doing their bit for the environment and this feels like a penalty to them. When it comes to the actual legal argument, and the argument that they’re making is that the state of Victoria lacks the constitutional authority to impose this charge. The basis of their claim is section 90 of the constitution, which reserves the exclusive power to levy excise on for the Commonwealth. So this comes down to a technical argument about whether this tax is or isn’t an excise, because if it is an excise, only the Commonwealth can levy it.

So there is a set of legal arguments, basically an excise is a tax on the quantity or value of a good. And so much legal argument will ensue, but I think that’s the crux of the matter. The reason why the Australian Trucking Association is supporting the Commonwealth is that heavy vehicles at the moment are not part of this charge, but their concern is that if this charge is upheld and it’s found to be a legal thing for the state of Victoria to do, That there’d be no obstacle to Victoria extending it to heavy vehicles, and that would have a significant financial impact on its members.

So that’s the arguments for the plaintiff. Take us through the arguments for the defence, Tash.

Natasha Bradshaw: The Victorian government’s argument is that the zero and low emissions vehicle charge doesn’t meet the definition of an excise, and therefore they, as a state, have every right under the constitution to oppose the charge.

And they give a couple of reasons to this. One is that they think the charge is a tax on an activity, that being driving, rather than a good. And they say that even if the charge is a tax on goods, it’s not a tax on the production, manufacture, or sale, or distribution of goods, but rather on the consumption of goods, and therefore wouldn’t be considered an excise under the Constitution.

And of course all of the other states have rushed to support Victoria as it’s in their interests if they want to raise a similar policy and try and claw some of the revenue from electric vehicles. So really the crux of this is less about whether there will be a charge and more about whether the revenue will go to the states or to the federal government when these charges start to be imposed.

So Marion, how much is this actually raising, and how much money is on the table here?

Marion Terrill: So, at the moment, not much. So As you said, the current rate of the charge in Victoria is 2. 8 cents per kilometre, and the estimates are that the typical driver will pay 380 a year. You can compare that to the driver of a typical petrol vehicle, 60 litre tank, where they’d be paying 660 a year in fuel excise, so quite a lot more.

So that the, the revenue at stake is not high at the moment. In fact, Victoria is spending more on subsidies and, and sort of supporting EVs than it’s actually pulling in in tax. But I think all the parties are pretty clear that this is a low tax for now, but there’s always scope to increase it over time as EVs become more widespread.

Some people argue that to counter a decline in fuel excise, structurally over time and quite gradually. So I guess that’s the revenue side of it. Tash, the other thing that the plaintiffs are really worried about is that it will discourage the use of electric vehicles or the uptake of them. What do you think about that?

Natasha Bradshaw: Well, the argument is not intentionally convincing, and there’s a couple of reasons for this. First, the issue in Australia at the moment is less about getting people to want to buy an EV, and more about getting enough EVs into Australia so that the people who do want them can buy them. As we’ve discussed on this podcast previously, the implementation of an ambitious emissions ceiling is the only policy we need to bring down car emissions, save drivers money, and it comes at almost no cost to taxpayers.

Now, the admission ceiling is an issue for federal government, but in the meantime, the Victorian government is spending far more on a suite of policies to encourage EV take up than the small amount it will make from this tax. So at the moment, EV drivers receive a 100 fee discount on their car registration.

The Victorian government had introduced 3, 000 subsidies for point of purchase of EVs at a cost of about 46 million. They’ve also spent 19 million on charging infrastructure for regional Victoria, and they’ve spent money replacing the government.

So any claim that the government is disincentivizing the transition to electric vehicles is simply not true. The other thing that we need to consider is that while any trip in an EV is better than the same trip in a petrol car, a trip in an EV still has costs associated with it. One of the biggest of those is the demand for roads, so the building and the maintenance of roads is very expensive.

We’ve calculated that what the EV charge would need to be to cover just that expense would be about 4 cents per kilometre, less than the 2. 8 cents per kilometre that EV drivers are currently being charged in Victoria. It’s also substantially less than what petrol drivers pay through taxes on fuel, which would work out to about 5.

on average. So it’s already starting to look like EV drivers are getting a pretty good deal even with this tax. And building and maintaining roads is only one cost. Marion, there are other costs associated with driving. What are these, and how might these charging regimes deal with them?

Marion Terrill: Yes, so there are other costs.

We do think about emissions, of course, I think we get seeing more and more recognition of exhaust pipe pollution which is harmful to human health as one of the costs of driving. You’ve talked about the demand for road construction and maintenance, which is also a big one. Some of the other factors are congestion is important, particularly in the larger metropolitan areas and regional areas. It doesn’t matter what sort of vehicle you’re in for accidents as with congestion. And also, I guess, just the dominance of public space is perhaps a bit underrated, but it is a significant factor about car dependence more generally. So, there are, there are a lot of costs to the community of driving, some of which are higher if you’re in a petrol or diesel vehicle, but not all.

So, the kinds of instruments that are better equipped to deal with those other costs are for congestion, you can’t really use this type of. mechanism to deal with congestion because congestion is time and place specific. So that’s really something for state governments to handle. When it comes to accidents, we typically do deal with that through a sort of compulsory third party insurance arrangements.

So again, because of the character of the risk. What I think electric vehicles will, are going to be very good for exhaust pipe pollution as well as, as well as emissions, but we don’t have a systematic way of dealing with the demand for road construction and maintenance. And so that, that sort of remains.

Out of scope of this, but because a per kilometre charge is not the worst way to contemplate spreading the cost of that around the community, because it falls on those who are doing the demand, creating the demand.

Natasha Bradshaw: So we’re expecting a result on this case by the end of the year. Which side are you backing in?

Marion Terrill: Well, I’m not a lawyer, so I’m not making a comment on the legal arguments. I think what I would say is what’s at stake here is really in the end who gets to control this revenue. And because the Commonwealth is constitutionally unable to discriminate between states or parts of states, I suppose I think there’s a future for road user charging that does take account of different times and places

costs associated with different times and places. So fuel excise revenue is either going to wither gradually or it’s going to be killed off at some point. But I think whatever the outcome of the High Court challenge, the writings on the wall, that we are going to get more road user charging and hopefully smarter charges, which means more differentiated by time and place.

So I think. For that reason, I see a lot of merit in the state government being responsible for road user charging.

Natasha Bradshaw: Thanks for joining me, Marion, and thanks everyone for listening.

While you’re here…

Grattan Institute is an independent not-for-profit think tank. We don’t take money from political parties or vested interests. Yet we believe in free access to information. All our research is available online, so that more people can benefit from our work.

Which is why we rely on donations from readers like you, so that we can continue our nation-changing research without fear or favour. Your support enables Grattan to improve the lives of all Australians.

Donate now.

Danielle Wood – CEO