rss
51

Electric vehicle uptake will drain fuel tax revenue, report warns

Print Friendly

mitsubishi-i-electric-charging-310x224A new report has warned the federal government to budget for the inevitable shift from petrol fuelled cars to electric vehicles in Australia, not just to provide the necessary infrastructure, but because it will take a huge chunk out of future road revenues.

In its inaugural five year review – delivered to government in August and released to the public on Tuesday – the Productivity Commission highlights the need for reform in the funding of and investment in roads, which it notes is the single largest item of infrastructure spending for governments.

Of particular concern is the fuel excise. This tax, unlike licence and registration fees, is charged to consumers by the federal government, and accounts for nearly 50 per cent of all annual road fees and charges levied by both state and federal governments.

So it has been a major earner for Canberra. But not for much longer, warns the Productivity Commission.

“Up until now, road-related fees and charges have generated sufficient revenues to meet road spending needs,” the report says, and the chart below illustrates. “Looking forward, however, this will not be the case.

ProductivityCommissionRoadRevenue

“It is projected that road-related revenues will fall in real terms relative to demand for road services (even under conservative assumptions about population growth).

“In particular, fuel tax revenues (the largest single road-related charge, accounting for about 45 per cent of total road-related charges in 2015-16) have declined and are projected to continue to fall in real terms due to the improved fuel efficiency of cars, changes in travel preferences of commuters, e-commerce and the anticipated shift toward electric vehicles (which use no fuel, or little in the case of hybrids) — all of which reduce average fuel consumption.

“At the same time, automated vehicles and new technologies enabling more convenient ride-sharing are revolutionising transport. Though nascent in Australia, they have the potential to substantially improve overall network efficiency, and individuals’ mobility,” the report says.

“To the extent that newer and automated vehicles are electric (or hybrid electric) powered, an increase in their use will exacerbate funding pressures.

To counter this, the Commission suggests a major shift to the federal government’s revenue gathering system that doesn’t discriminate by vehicle type, and is directly related to actual road usage.

“The looming pressure on fuel excise as a source of revenue is primarily a shift that involves private cars,” the report says. “The solution — if taxpayers in general are not to pay more — must involve pricing the movements of light vehicles as well as heavy vehicles.”

Done well, the report says, the changes could even turn out to be a boon for the national budget.

“The value of more efficient use of the road network alone is estimated to be equivalent to approximately 0.7 per cent of GDP in the long run, or a permanent increase to the level of annual GDP of approximately $20 billion.”

Over 20 years, the net GDP gains would look more like $63.7 billion, the report adds, or $4.5 billion in annuity value terms (taking into account a phased introduction of reforms).

“On top of this, there would be allocative efficiency benefits from the closer matching of services to those actually preferred by road users, and reduction of inefficiencies associated with poor project design and delivery,” it says.

The Productivity Commission recommendations follows a separate report on electric vehicles last week – a joint release from the NRMA and the Electric Vehicle Council – that warned that EVs were “coming to Australia at a rate of knots,” and that Australia was unprepared for their arrival.

Behyad Jafari, CEO of the Electric Vehicle Council said the findings of that report represented the need for the government to support the move to electric cars, especially due to the benefits they could bring.

“There is a reason why governments [around the world] are intervening to transition fleets from petrol and diesel to electric,” he said.

“It’s one of the more efficient ways to reduce emissions. That includes improvements to air quality and recognising that this is a new technology that is continuing to get more efficient and is growing around the world.

“The largest role here is for the federal government to send an ambiguous message to consumers and industry that it supports this transition to electric vehicles. That means providing incentives or tax exemptions for the purchase of electric vehicles and having a nationally coordinated plan for the transition of our road fleet.”  

Share this:

  • Chris Jones

    The Australian electric Vehicle Association (AEVA) made a detailed submission to this document describing the massive productivity benefits, not to mention improved terms of trade, from ditching imported oil and powering our fleet on electricity. So it’s somewhat unsurprising to see all the government cares about is lost revenue – not productivity!!
    We even suggested a per kilometre travelled model for recovering the lost revenue from Fuel Excise which was staged in line with the increasing number of EVs on our roads…

    • How ironic is it then that the report was published by the Productivity Commission. Too weird. Keep up the great work. You are making dreams come true.

    • lin

      The AEVA should also look at the improvement to the health budget of having less oil burners in our environment, which is estimated to cause several thousand premature deaths per year and cost billions through increases in respiratory and cardiovascular disease, cancer, premature birth and low birth weight, etc. Moving to EVs could be a win-win-win situation for the population, which is no guarantee LNP will get on board, but such a significant improvement is worth noting.

  • Peter Campbell

    I just like to think of the fuel excise as a carbon price on vehicle emissions. It makes up for when I was buying greenpower to run my electric car but still paying the carbon ‘tax’ as well while petrol was exempted from the carbon price.
    As fuel excise revenue falls, the govt will easily manage to raise revenue in other ways. Not having a fuel excise for EVs could be seen as an appropriate incentive for lower emissions.

    • Rod

      I was livid when Little Johnny put a hold on fuel excise indexation. The COALition managed to sneak it back in this term (maybe last) without too much fuss.

  • Stan Hlegeris

    Remember that any per-kilometer road use charge needs to increase geometrically with vehicle weight.

    A big portion of road spending is on repairs, and the damage done to roads varies as about the 4th power of vehicle mass. This means a 2 tonne vehicle does 16 times as much damage as a 1 tonne vehicle.

    A 10 tonne vehicle does 10^4 = 10,000 times as much damage.

    The fuel tax never recognised this, as fuel consumption varies only as the square of vehicle mass, approximately.

    This creates a chance to allocate the cost of road repair to those vehicles which cause the damage.

    • Andrew Thaler

      you are full of shit.

    • Chris Jones

      Yes, heavy vehicles do more damage to the roads than light vehicles, but they also pay a small fortune in state government fees too. EV or ICE, the roads will still need maintenance and a contribution in line with how much they are used seems logical. But how much are people willing to pay to have their goods delivered on time and in good shape?

      • Stan Hlegeris

        Hi Chris–Heavy vehicle rego fees do look like big numbers, but they simply don’t measure up to the costs imposed on all of us by these same heavy vehicles and the damage they do to our roads.

        Delivery costs would increase if these damage costs were recouped from the operators of heavy vehicles. This would flow through to the cost of goods. But I suggest it’s better to pay it there–and think more carefully about how much stuff we buy–than to pay for it via some less obvious strand of the tax system.

      • lin

        “heavy vehicles do more damage to the roads than light vehicles, but they also pay a small fortune in state government fees too”
        But not enough to cover the damage they do. if realistic cost recovery was introduced, trains would be a very economical way of transporting freight.

  • Jonathan Prendergast

    Rather than imported oil, if the energy for our vehicles is provided by locally operated (and sometimes owned) generation and distributed electricity, there will be significant economic, investment, terms of trade and employment benefits.

    As EVs cost less for the energy they need, this frees up cash for households and businesses also.

    • Andrew Thaler

      sorry, logic is not permitted in Australian political discussions. Stop it, or you will be banned!

      • My first thought exactly. Charging road taxes based on who actually uses and damages the roads the most (ie trucks)? That type of logical and forward thinking behaviour has NO place in Australia! 🙄

      • Mike Westerman

        No the gov is run by lawyers – you’ll be sued

  • howardpatr

    Much more effort will be made to facilitate EV charging directly from the rooftop panels.

    • All vehicles will probably get rooftop panels.

  • phred01

    This why the coalition cs renewables as bad. Will need to plug the deficit by by introducing a new tax. Maybe they are thinking of a pole tax

  • Joe

    Surely the benefits, such as reduced public health costs and premature deaths, of reduced emissions will outweigh the loss of fuel excise. Can’t the health benefits be measured and compared with the so called benefit of fuel excise.

  • Andrew Thaler

    bugger-all of the excise collected is spent on roads.. most of it goes into consolidated revenue to pay for political perks and public servants who exist only to dream up new ways of taxing the people… and what is sent to ‘roads’ is wasted on shit patch-ups and lazy roads ‘management’ bureaucracies.

    • Ken Dyer

      Exactly right

  • Andrew Thaler

    and don’t forget.. without trucks, Australia stops.

    How else are you going to get all your consumer shit and trinkets, food delivered?
    Trucks will not be impressed to have a per-kilometre cost upon them disproportionate to cars which is what we see with tolls on private roads now.
    Be careful what you wish for.

    • George Darroch

      Australia’s road transport actually paying its way? We can’t have that!

    • Ken Dyer
    • RobertO

      Hi Andrew Thaler, How are you going (with the though that BHP has 32 driverless moving 200 000 metric ton a year and people are toying with the idea that soon there may be more of these driverless vehicles on our roads and our railways may also become driverless). In all of these discussion we need to start with Renewable Energy (RE) first, not with the COALition trying desperately to stop RE at all costs (they will if possible push costs as high as they possibly can claiming they are for the NEG and other are for unreliable power (RE). Drivers may change how they work, and at what they do as part of that work, who knows. This may be the next step? Lighter that the current semi. https://nikolamotor.com/

  • Barri Mundee

    Um… for a somewhat different take on this tax revenue “problem”,The Australian Government is a monetary sovereign. Every time the Australian Government spends a dollar, it does so by crediting the reserves of a commercial bank which are held at the RBA (Australia’s central bank) by that dollar, and having the commercial bank credit the bank account of whoever has been the beneficiary of that spending. In other words, every time the Government spends, it creates money. Not some of the time – every time. All of the Governments spending creates money, and all this money is created using the equivalent of keystrokes on a computer.

    The Government does not need to receive your money in taxes, or borrow your money by selling bonds, or raise money from you by selling you shares in government owned utilities …. before it spends. Think about it for a moment. It isn’t, in a literal sense, your money in the first place. Who issues the nation’s currency? The RBA. And who owns the RBA? The Australian Government. The Government doesn’t need to collect its money, which it creates, from you before it can spend.

    The question is, then, why do governments tax people at all? Taxes do not ‘pay for government spending’, after all. Taxes do not pay for the education service. Taxes do not pay for Medicare. It might make you feel better to know that your taxes are not paying for military weapons. They really aren’t. The Government doesn’t need to get money from rich people before it can spend. Your taxes, in a literal sense, do not pay for anything. Taxes, at least in a monetary sovereign state, pay for nothing at all.

    So, why do we pay taxes? There are many distributional, or microeconomic, functions which the tax system fulfils. However, at the macroeconomic level, the purpose of taxation is very simple. It is necessary for people to pay taxes to destroy (to use a provocative word) some private sector spending power, to make room within the economy for the government to conduct its desired spending on public goods and services, without pushing total spending in the economy beyond the productive capacity of the economy and causing inflation. Taxes limit inflation, helping us to maintain the spending power of money, so that people maintain their confidence in the value of money.

    • Lindsay

      Ahh excellent. Someone who understands how modern money works!

      Federal taxes, any federal taxes, are inflation control measures only and are not required for federal government spending!

      A reduction in tax excise means nothing to the federal government. It can spend as long as there are real resources to be bought or idle labour to be employed.

      • Barri Mundee

        You probably will not be surprised at the reactions I get when I try to raise the subject, usually when some issue gives me an opening.

        Most are incredulous – surely everyone knows government needs our taxes to fund its spending? And its actually true for State and Local government, businesses and you and I, but not the Federal government.

        • Lindsay

          Keep up the good fight Barri! At some point politicians and mainstream economists will have to accept the reality of money. Then we can all have a proper discussion about how it should be spent.

  • George Darroch

    Good. Billions are wasted on our roads every year.

  • brucelee

    What about a tax on tyres, tyre wear is proportional to miles travelled and driving style.?

    • trackdaze

      Makes perfect sense until you take the Moral (safety) hazard into account.

  • Miles Harding

    A coordinated plan??
    You must be talking about a different government!

  • Ken Dyer
  • John

    Who knew? 🤓

  • Robert Comerford

    And we save a fortune by importing less in the way of oil products.
    Got to be good for the bottom line.

  • maxlyrical

    Electric vehicles like Tesla now have smart suspension that eliminates bumps, thereby radically reducing road wear and damage. I thinks someone in Queensland also figured a similar system for trucks.
    With the electric revolution come many innovations.

  • SydEV

    Not to mention the savings to the nation’s Health care budget from cleaner suburban air quality.

  • Miles Harding

    That graph is a bit of a concern.

    We appear to have hit “peak car” and are witnessing the roads becoming unaffordable, irrespective of an electric “carmageddon”.

    For some time, I have observed that the complexity and cost of road networks hits modal changes at various population levels:
    * below 50,000 persons, cars aren’t needed. Walking or bikes suffice.
    * Below about 500,000 , journeys are short and cheap local roads cope well.
    * Between there and 2 million, freeways become essential, so the cost of the road network steps up as more freeway needs to be built.
    * Somewhere above 2M inhabitants, freeways are no longer sufficient and 3-dimensional roads are necessary, this could be by stacking roads or tunneling. Either of these is very expenive and may explain the cost crisis shown in the graph.

    The USA has addressed their cost crisis by signifricantly abandoning road and bridge maintenance, having now arrived at the point where large amounts of their network are now classed as critically deficient with a nearly $1T backlog of required maintenence. (http://maaw.info/ASCE2001Infrastructure.htm )

    I expect that Australia is headed in exactly the same direction.

    This suggests to me that our cities are wrongly built, car dependent and becoming increasingly unliveable. There appears to be no escape from this while we continiue to pursue a vision of surburban prosperity that was created in the late 1940s.

    It’s crazy to see roadways choked with commuters, all of whom live in dormitory suburbs and commute to segregated commerce parks far across town.

    • trackdaze

      Live where you work or work where you live.

  • Ian

    A little premature to be worrying about loss of tax revenue due to EV considering that in 2016 1369 EV were sold in Australia according to climateworksaustralia.org . Tesla’s effort is due for completion in 2020 and only ten similar sized factories in the world are being considered at this time. This country registers over a million new vehicles a year and Tesla’s factory will produce enough batteries for 1/2 million cars a year. The government can enjoy climate blood money for many years yet!

  • Ian

    Every dollar exported as payment for liquid fuel could be spent in this country. What is the percentage of tax paid into the government’s coffers for a dollar not sent overseas, considering that the dollar saved will be a dollar eventually spent within this country?

    Is it closer to 10% GST? Or closer to an average individual or company tax rate of about 30% or is it a sum of the two?

    In addition: the fuel not bought will represent to the individual about $1.40/l of money they can spend on something else. How much tax does the government get from Australian made goods or services, given that any item represents wages, company profits, purchases of equipment and raw materials and GST on top of that. If this total figure is about 30%, then 1litre of fuel not bought, but the savings spent on something else would yield a tax of $1.40 x 30% = 42c

    This amateur analysis is probably all wrong, but maybe someone can give a better answer to the question: is the government better off tax-wise with the sale of imported liquid fuel used by ICE vehicles or better off with the use of domestically produced electricity by EV?

    • Mike Westerman

      Ian all our exports embody imported fuel, whereas EVs would result in export of embodied RE. Exports are about 1/6 of our GDP, and if imported fuel used is spread evenly across the economy, we export about $6B of embodied energy. Because of higher efficiency conversion and much lower costs for RE, this would be replaced by about $600M of RE plus significant maintenance savings for vehicles and roads.

  • Les Johnston

    Fascinating that the PC offers a gloomy outlook for Gov revenue from fuel taxes while the WestConnex EIS, released just 2 months ago, is modelled on almost zero EVs running on NSW roads out till 2033. Either WestConnex EIS is a sham or the Productivity Commission is hopelessly wrong. Who do you trust?

  • SomethingSomethingSomething

    Imagine if we hadn’t flogged off all our power networks to private companies and they were still state owned; the electrification of transport would be a boon for government coffers as energy use moves from imported fuel to locally produced electricity…increased revenues and a move towards energy independence. Privatisation, the gift that just keeps on taking.

  • MaxG

    “Bloody free-loaders” they will shout at these EV owners… like they did with solar. What a crazy world we’re living in!

    • Mike Westerman

      As they do already to cyclists

  • Ken Dyer

    43 electric vehicles for sale in Australia according to Carsales.com.au. Has not changed in months. The fuel tax revenue is safe. Phew!

    • Peter Campbell

      A few more if you do individual searches for various plug-in hybrids: Holden Volt, Mitsubishi Outlander PHEV and Audi e-tron, for examples.

  • William

    Just have EVs pay a fair annual registration that reflects road funding needs and their impact on the environment. Easy.