What’s slowing the transition to EVs in Australia?

Sascha: [00:00:03] I'm Sascha Kelly and welcome to The Dive, the podcast that asks to have a set that business news needs to be all business. You're in the market for a new car. You're a forward thinking, environmentally conscious individual, so you buy yourself a brand new electric vehicle. It's not a small amount of money that you decide to pop with either. The most affordable electric cars in Australia, there's still upwards of $45,000. Luckily, the Australian Government is on your side. They introduced legislation last year to help knock a bit off the price of these cars. Either way, you're happy with the decision. For one thing, you're not paying what you're used to in fuel, but because you're not buying petrol anymore, you're also not paying fuel excise, the collection of which the states rely on to pay for the wear and tear of their roads. The Victorian Government has decided to step in, facing a shortfall with fuel excise as it decided to introduce legislation to target EVs. For every kilometre you now travel on the roads in Victoria you have to pay 2.6 cents. Two fellow EV owners, incensed, have filed a lawsuit which has now made its way to the High Court, the result of which is being carefully watched. Those opposing the tax are worried it could deter Australians from transitioning to EVs because currently the market is a woeful 3%. It's Wednesday, the 26th of April, and today I want to know what's hindering the transition to EVs in Australia and what are we trying to do about it. 

Audio Clip: [00:01:34] Right now? This tax is sending the wrong message to people that electric vehicles are bad and while they should be taxed for whatever reason. There is a pot of revenue at the end of the year and everybody wants it. 

Sascha: [00:01:47] It's my real pleasure to be joined today by Laurel Henning, who is a senior correspondent at M Lex, to talk about this subject today. Laurel, let's start. Could you provide me some context on the state of the electric vehicle market in Australia currently and also how we compare globally?

Laurel: [00:02:05] Sure. Sascha, so great to be with you. First of all, let's just say that it exists, but we're pretty far behind other jurisdictions. We have had a low emission vehicle strategy in Australia before now, but this is the first time that the government has targeted electric vehicles specifically. So that's why this is a big step. And in terms of globally where Australia sits, we're about four times lower in our makeup of the national market of car sales that electric vehicles account for compared to other jurisdictions. So in Australia, electric vehicle sales accounted for about 3.8% of the national car market in 2022. But that lags way behind the European Union, the United Kingdom and the US.

Sascha: [00:02:51] But the Australian Government is really keen to change that. They want to, to quote the article Turbo charged that take up rate and this is where this story kind of takes an interesting turn because it's becoming clear there are significant speed humps. To use another road analogy in the relationship between Australian states and the Federal Government. Can you unpack that for me? 

Laurel: [00:03:16] Absolutely, Sascha. So last year the Federal Government introduced an electric car discount. So that's all of this strategy is sort of adding to some work that's already been done in this area and that discount that was introduced by Parliament last year. In about November, it passed. Parliament exempts electric vehicles from a fringe benefits tax, which is basically designed to knock around $9,000 off a car costing $50,000. That's the goal there. But that led to the fork in the road. Let's go back to the road analogy. That's exactly where that started to divert between federal government strategy and state government strategy in Australia. So in Australia, the federal Government is responsible for tax and state governments can introduce excise duties but can't introduce tax. Tax is meant to be the remit of the government, the federal government only. And that's caused a bit of tension specifically in the state of Victoria. So the shortfall in revenue, in state revenue as a result of that, that piece of legislation that I just mentioned, the electric car discount led the State of Victoria to introduce legislation targeting electric vehicles, specifically with the aim of charging them for the amount of distance that they travelled. So that measure is now at the heart of a legal battle before the High Court of Australia, which is Australia's Supreme Court. Basically for our listeners that are overseas over whether the government of an Australian state has the right to impose a tax on electric vehicles and whether the measure is in fact a tax or an excise. So we're really getting into the semantics when we get into that lawsuit, which is really getting into the weeds of how these strategies have diverged. Over the last year.

Sascha: [00:05:03] And the reason the State Government of Victoria is saying that is because they're arguing that those electric vehicles still use the roads that they have to pay to maintain. 

Laurel: [00:05:12] That's exactly right. So wear and tear is still the same. And in fact, that's an argument that an electric vehicle is heavier than a conventional vehicle because of the weight of the battery. So the wear and tear to the road is potentially more with an electric vehicle. 

Sascha: [00:05:27] And this testy relationship. And the reason that we're focusing on Victoria is because this case has now moved to the Supreme Court. Talk me through the case at the centre of this conversation. Let's start with the two plaintiffs. What's their position? What's their argument here? 

Laurel: [00:05:42] So we've got two electric vehicle car owners. This case is really coming down to the individual level. But when we get all the way up to the Supreme Court, obviously the ramifications of it are going to be far reaching for many electric vehicle owners, both present and future. And they filed a lawsuit claiming that the state's electric vehicle legislation was unconstitutional because of that semantic relationship. I said that between tax and excise duty and whether the state government or the federal government is responsible for each one of those. And the federal government quickly threw it support behind the lawsuit with the governments of all states and territories backing Victoria. So when it appears the High Court's ruling on the case may not even mention electric vehicles, it's really going to be a tax lawsuit more than an electric vehicle lawsuit. But what's become central to the case, as I've mentioned, is the Section 90 of Australia's 1901 constitution, the imposition of a tax of this kind and whether it violates the federal government's and I quote exclusive power over Customs, excise and bounties, end quote. So that's the detail there.

Sascha: [00:06:49] And the State Government of Victoria is defending themselves. What's the backbone of their argument and the argument that, as you've said, all the other states and territories have kind of attached themselves in support of even the act who are advocating for the uptake of EVs. But it seems like they're kind of counteracting their own argument by joining Victoria in support here. 

Laurel: [00:07:10] Right? The states are saying they're not imposing a tax on goods, in this case, the electric vehicle itself. What's being taxed is the service or the kilometres driven by the electric vehicle, but Ban the stock and Davies, the two named plaintiffs say that the Victorian legislation is a tax on the consumption of goods, which amounts to a duty or excise. So that's what the states are saying. And then the nub of the argument between them and the plaintiffs as well. 

Sascha: [00:07:37] So as you said, lots of small details here, like lots of in the weeds, so to speak, or like the semantics of tax law. But as you rightly said, a lot of this is going to have far reaching implications for the take up of EVs in Australia. And the federal government has clearly made that a mandate, that they want us to be driving more electric vehicles. I'd like to talk about the cause and effect of this case and what it might mean going forward if the Victorian Government wins. What may this mean for the future uptake of EVs in Australia? 

Laurel: [00:08:13] So if the Victorian Government wins, then I think what you'll see is a potential struggle between the Federal Government trying to make electric vehicles a more attractive option for drivers, potentially through other incentives and financial incentives. Those are yet to be seen, but we are now seeing the development of a fuel efficiency standard, which is something that we can get into in a moment. That struggle versus the state governments struggle if they win or lose. Regardless of the result of this case, any state government is going to have to deal with the fact that there are heavier cars potentially driving on their roads and that they're also through the discount that we discussed earlier, going to see a drop in their state coffers. And so they're going to have to fund this from somewhere. And how they do that is a question for the states to to handle and figure out. 

Sascha: [00:09:03] I'll be back with more of my chat with Laurel Henning, senior correspondent AM shortly when she reveals that there is good news coming for our hip pockets in the near future.

Audio Clip: [00:09:14] The government has committed to long awaited mandatory fuel efficiency standards, which would require carmakers to meet emission limits Or risk Penalties. 

Audio Clip: [00:09:22] If we continue going along at this pace. Australia risks becoming the dumping ground for the world's dirtiest vehicles that they're unable to sell elsewhere. 

Sascha: [00:09:32] Let's turn to the fuel efficiency standard that you've been talking about and that you'd like to get into. What does that potentially mean? 

Laurel: [00:09:39] Just to get into that, yeah, I think Australia is one of maybe two developed countries alongside Russia that doesn't have a fuel efficiency standard at the moment. And that means that cars in Australia on average are about 40% less fuel efficient or new cars in Australia use 40% more fuel for instance, than the European Union, or 20% more than the United States and 15% more than our closest neighbours in New Zealand. And that's an issue for consumers as well, because that means that one, if you want a cleaner car, you're probably having to spend a lot more money because of your importing it, and it's not in overseas carmakers interests to send these efficient cars to Australia and to fuel. If you're having less efficient cars sold over here, which is the result of us having no no fuel efficiency standard, it's more attractive to car companies to send their less efficient cars here. You're going to end up paying more for fuel. 

Sascha: [00:10:40] I mean, when you pointed out that it's such an obvious ramification of those decisions, but it's not something that's obvious to us as a consumer. 

Laurel: [00:10:47] And the goal of this as well long term will be that not only will we see more efficient cars sold generally in Australia across the board, whatever kind of car you want to buy, it will probably be more efficient in the future than it is now. But also it will mean that those more efficient cars in the new sale market will then eventually filter down into second-hand car markets and then make that market more efficient as well. So the long term ramifications of introducing a fuel efficiency standard should be good for consumers' pockets anyway. 

Sascha: [00:11:19] So I think the two crucial questions for me coming out of this discussion is when is this court case that we've been talking about, when is that likely to be resolved? And also when are we looking to the federal government introducing these fuel efficiency standards? 

Laurel: [00:11:33] So the court case is a little bit more of a crystal ball situation. There's no clear deadline on that at the moment and court cases like this can run and run. It just depends on the judges making that decision and the timing of the arguments and things like that. But the fuel efficiency standard is now being consulted on, and the government is planning to propose that by the end of this year. So you should be able to save money on the fuel for any new car that you buy sooner rather than later. 

Sascha: [00:12:01] Here's hoping. Laura, thank you so much for joining me today. This is such a fascinating topic and it's been our pleasure having you here on the diet. 

Laurel: [00:12:08] Thanks, Sascha. 

Sascha: [00:12:09] And that's it for today's episode of The Dive. I will be back with you in your feed on Friday. If you love our episodes, then do us a favour. Please give us five stars on your podcast. Play out those reviews. They help us climb charts and be found by other listeners and every little bit helps as an independent media company. Thanks so much for your time today. Until next time