Skip to content

Electric car growth and greater fuel efficiency spark calls for change to fuel excise funding

ABC News, 29 August 2018
The drive to electric vehicles promises a better future — but there is a road rage battle brewing, pitting petrol guzzlers against their green successors on how we should be paying for our roads.

It has been recognised for a while that the drive towards electric vehicles could see us run into a major budget black hole, but last month the Parliamentary Budget Office warned just how bad the problem was.

Fuel excise, a primary source of income for the Government, has already fallen 30 per cent as a share of GDP between 2001-02 to 2016-17 (from 1.6 per cent to around 1 per cent).

“Right now, there is a burning platform,” said Adrian Dwyer, chief of Infrastructure Partnerships Australia, which has made a submission to the Senate committee on electric vehicles.

Mr Dwyer said now was the time to start to replace fuel excise with a more sustainable funding source: “Roads aren’t free, we have to pay for road infrastructure and we have to pay for transport infrastructure, and that means either paying for them through your taxes or paying through user charges,” he said.

He said he wanted to see a user-pays system where drivers pay based on how much of the road they “use”.

He said he envisaged a system where drivers paid the Government for the kilometres they drove in a month, in much the same way people paid their phone bills. And he said he wanted to start with electric vehicles.

Mr Dwyer said this should happen as soon as possible, while electric vehicle uptake was relatively low and while those buying them were relatively affluent. He said it was not fair that poorer drivers of old cars were effectively subsidising richer drivers of electric vehicles.

“If you drive a 10-year-old car, a 10-year-old Commodore, you’re paying a lot more than someone who drives a Toyota hybrid, a Prius, and if you’re driving a Tesla you’re not currently making a contribution at the point of use,” he said.

The current system
Drivers of traditional petrol-powered cars contribute to the cost of the road network every time they fill up.

For each litre of fuel you buy, you are contributing around 40.9 cents to the Federal Government’s coffers.

It is a huge amount of cash. Total fuel excise revenue is about $18 billion a year, or 5 per cent of total revenue, according to the 2018-19 federal budget — although this is a number that does not include cash returned through subsidies, such as the diesel fuel rebate.

This is then used for building new roads or maintaining existing ones.

It is a simple but relatively effective way of getting people to contribute to the cost of building and maintaining roads — in theory, the more you drive, the more you pay.

The problem is, that relationship is now broken.

Analysis by Infrastructure Partnerships Australia showed that, while the total vehicle kilometres travelled on Australian roads surged from 217 billion to more than 250 billion between 2005/2006 and 2015/2016, the amount of fuel excise collected dropped in real terms by $1.1 billion.

This was mainly because new cars became much more fuel efficient. As the budget office pointed out: “The average fuel consumption per passenger vehicle in 2001 was 11.4 litres per 100 kilometres. By 2016 average fuel consumption was down to 10.6L/100km.”

Less fuel needed meant less tax paid per kilometre.

Electric vehicles present an even bigger problem — if your car does not require fuel, then you are not contributing at all.

“Over the last decade or so, fuel excise has been in decline, but with new more fuel-efficient vehicles and particularly hybrid and electric vehicles, it’s now in terminal decline,” Mr Dwyer said.

Concern as electric car market set to grow
Electric cars have had a negligible effect on Australian road funding so far because there are not many of them.

Australians have been laggards when it comes to signing up to electric vehicles. Electric vehicles only make up about 0.2 per cent of Australia’s fleet, well below the global average of around 2 per cent.

By way of comparison, the leading electric vehicle nation on a per capita basis is Norway, which gives generous tax concessions to buyers of electric vehicles to encourage their uptake — 6.4 per cent of the stock are electric vehicles and last year 39 per cent of new cars sold were electric.

Although there was a 160 per cent increase in the sales of electric vehicles sold in Australia last year, in 2018 it is still only expected between 8,000 and 12,000 electric vehicles will roll off lots.

But despite this slow start, the Australian Energy Market Operator believes that by 2036/37 electric vehicles will make up 19 per cent of the light vehicle fleet in Australia.

The problem is that no matter how much those cars use Australian roads, they will not be contributing to their upkeep in fuel excise.

Behyad Jafari from the Electric Vehicle Council said he believed some form of road pricing was inevitable, but he did not want electric vehicles to bear the brunt or be unfairly targeted

“What we don’t want is a situation where we create a further disincentive for people to get into electric cars,” he said.

“In these short few years where the market is going from 0.2 per cent to catching up with the rest of the world.”

Mr Jafari also pointed out that electric vehicle owners were typically slugged with huge taxes at the point of purchase.

Electric vehicles are expensive to buy and are made even more expensive by the luxury car tax that almost all electric vehicles are slugged with when they roll off the lot.

The luxury car tax kicks in for electric vehicles at $75,526 versus $66,331 for standard vehicles.

It is then charged at 33 per cent for the amount over that threshold. This can easily add tens of thousands of dollars to a purchase price.

Move to electric would bring other positives
Mr Jafari also said we should remember the other benefits that electric vehicles brought.

“People who are driving electric vehicles are already providing a lot of advantages to Australian society,” he said.

“Every electric vehicle on the road means healthier people, means less impact to our environment and helps our economy by using a fuel source that we produce here.”

When powered by renewable energy, electric vehicles mean little to no carbon emissions. Less pollution filling our lungs, less sound pollution ruining our sleep and it would make Australia less reliant on foreign fuel.

Mr Dwyer agreed no tax changes should be made that make electric cars less attractive — “we should be encouraging the uptake of electric vehicles, by removing the upfront impediments, things like luxury car tax and import duties, they’d reduce the sticker price of electric vehicles” — and said it made economic sense that people should instead be paying for when they use public roads.

The rising popularity of electric vehicles will drive Australia off a fiscal cliff unless our system for funding roads is changed soon.