Electric Vehicles don’t pay fuel tax – and that’s OK?

When you buy petrol or diesel in Australia, about $0.41 per litre of whatever price you pay at the pump is because of the fuel excise tax.

That’s quite a decent proportion at the moment considering oil is crashing hard and you can currently get general unleaded petrol for about $1.30. However if you own an electric vehicle and use electricity to “fuel” your car… you don’t buy petrol and thus, never pay for this excise tax.

What is Fuel Excise for anyway?

Good question! Especially considering over a third of Australians don’t even know that more than 40 cents per litre of their petrol price is tax! According to the government:

Petrol and diesel excises are levied primarily to raise revenue. A second reason is to recover from road users the costs they impose on society. And, historically, revenue from excise was at times hypothecated to fund expenditure on roads. Hypothecation is the earmarking of the revenue from a particular tax for spending on a particular purpose.

So while it used to be used to fund repairing roads etc, that’s now no longer the case. It’s basically just dumped into the large “general tax pool of money” and then used for a lot of various things.

Which is fine as although a lot of people despise taxes, they do many, many good things from creating jobs, funding wind or solar farms to building hospitals and schools. As such, they’re required and everyone should be paying their fair share.

EV owners save hundreds of dollars on fuel taxes each year

If you’re a standard driver in a moderately sized and efficient car (say a 2016 Mazda 3) you’ll likely get about 6L / 100 km. Assuming you drive about 15,000 km’s per year that’s 900 Litres of fuel or $370 worth of fuel excise you’d pay.

So for every person that changes over to a BEV, the government is then permanently missing out on about $300-$400 of tax every year forever more. Obviously this could start to add up very quickly when EV’s take off, probably in 2020/2021 or so.

Other ways in which the fuel excise tax seems broken

EV owners not paying isn’t the only way the fuel excise is “broken”. There have been a huge number of things pointed out over the years as to why it’s unfair for various people.

For example, poorer people often have older and less fuel efficient cars meaning they are forced to buy more petrol and pay more tax than others. They also usually have longer commutes meaning they have to buy even more again.

On top of that you have other obvious flaws in the scheme given that both diesel and petrol drivers pay the same excise, yet diesel contributes much more to the harmful pollutants in the air than petrol.

Of the few people that are aware that EV owners don’t pay the fuel excise tax, many get angry because they see it as the “rich EV owners” getting a free ride while everyone else has to pay.

EV’s reduce, or at least geographically shift, emissions from cities

However there’s many different ways you can look at this situation. For example, the second reason for the fuel excise existing as explicitly stated by the government themselves above “is to recover from road users the costs they impose on society“.

It’s a fact that EV’s don’t produce any pollution while they drive around. They could have a low or zero pollution footprint depending on how you charge them, but while they’re driving there is nothing put out. This reduces the “cost on society” because it reduces pollution from the air we breath.

While many focus solely on the cars “lifetime carbon footprint” – something that is also important –  in the context of direct harm to a person the particulate matter and pollution clogging up our cities and being breathed into our lungs on a daily basis is more immediate than the long term effects of climate change.

So if EV’s are causing less damage and thus, less costs to the public, you could argue that it’s fair that they should pay less fuel excise too.

We can produce our transport energy domestically – instead of importing foreign oil

Another important point is that EV’s help society by reducing our dependence on foreign oil. We have plenty of sunlight and wind here in Australia, that’s everything we need to power as many cars as we want. This is particularly important given the highly precarious position we’re in regarding the constant supply of oil from overseas and our lack of proper oil reserves.

At the moment, from my estimations, in relation to petrol we have something between 19 to 24 days – Senator Molan

That quote above means if something happens in the world and our oil reserves are cut off, Australia would completely run out of all petrol and diesel in about 3 weeks. Obviously this wouldn’t be too fantastic for our economy…

Electric Car owners contribute more tax at the point of purchase

For now, at least. On top of all of these benefits to society there’s also the fact that most EV’s are quite highly priced now.

Due to the newness of the technology buyers of them tend to pay much more in LCT and GST than other petrol buyers would if they were buying a similarly speced fossil fuel car.

For example if a petrol car cost $70,000 and the EV equivalent version cost $80,000, that’s an extra $1,000 of GST and $3,300 of LCT the buyer would have to pay. That extra $4,300 would easily cover those missed fuel excise costs for 10+ years as calculated above.

Not paying fuel excise tax is a subsidy for EV owners

Tesla Model X

One final way to consider this whole “not paying for fuel excise” thing is to look at it instead as a kind of early adopters subsidy to help encourage people to buy EV’s early on.

EV’s are expensive now compared to what you might pay for a similar quality fossil fuel car, and although prices will come down over the next few years, if you think increased adoption is offers wider societal benefits, then a subsidy is probably justified

By comparison, currently in the USA you can get a $7,500 federal tax credit and then sometimes an additional state rebate depending on your state when you buy an EV. This is also very common in many other countries and is a well proven way to accelerate new technologies into the mainstream that the majority of the public believe will be a net benefit.

Australia otherwise has few EV incentives (nor even any car emission standards) so this seems like a pretty minor amount of money by comparison. After all, buying a Tesla Model 3 in California will give you a $10,000 USD rebate. That’s equivalent to more than $14,000 AUD and far out weighs $300-$400 a year even if you keep the car for 30 years straight.

So given what many other countries are doing to incentivise EV’s, what Australia isn’t doing, the overall net social benefits EV’s bring and finally the fact that Aussies are simply paying more in the form of other taxes for EV’s… I think it’s fine that EV’s don’t pay the fuel tax.

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