Australia’s road funding crisis worsens while EVs stay untaxed
There are costs for all of us when governments fall asleep at the wheel and one of those examples is hitting us already.
Many would remember the ill-conceived and clumsy attempts by the Victorian Government to tax electric cars – an attempt which resulted in then Treasurer Tim Pallas having to refund the tax when the High Court ruled it out of order.
Well, the other side of that ruling was that the Federal Government has carriage of taxing motorists and so Treasurer Jim Chalmers was left with the task of doing something to over time replace the current fuel excise of around $22 billion a year that all internal combustion driven cars and trucks pay at the moment.
No sign of a national road user charge
The only problem is that there is no sign of a national road user charge being introduced any time soon and the longer EVs remain essentially untaxed for using the roads, the harder it is going to be to equalise the tax treatment between electric and conventionally powered vehicles.
It is obviously unfair to lump all of the burden of road funding on the remaining slowly shrinking pool of car and truck drivers. Additionally, there is the issue of a massive Budget black hole that is opening up before our eyes.
Treasurer Jim Chalmers formed a group within national cabinet to plan the new charge way back in late 2003 after the court decision was announced but there has been precious little progress since then, with recent reports saying the discussions with state government have effectively gone nowhere.
That probably means the issue will remain unaddressed before the next election – yet another task left in the too hard basket along with meaningful tax reform.
Dr Chalmers has talked about establishing a road user charge for electric vehicles as a tax reform priority for a second term Labor government at a Business Council of Australia dinner but publicly he has said nothing.
Leaving the burden on younger workers
As the intergenerational report also pointed out, this is an issue of generational equity as well, with the decline of an important indirect tax base such as fuel tax leaving a higher tax burden in the laps of younger workers.
Obviously, this is a difficult issue to address fairly but solutions must be found and waiting until after the election only delays the inevitable, even though this sort of change would be ideally timed in the first year of an election cycle.
EVs are actually heavier than internal combustion engine (ICE) cars and there is some evidence that they are driven further too, so the issue of who pays to maintain roads is also one of equity between all vehicle users.
One of the many issues is that unlike petrol and diesel, it is very difficult to tax electricity to fund roads because it is used for so many other things as well.
You can’t simply slap a tax on electricity without having a range of inflationary and competitive effects on households and industrial users.
Not to mention the people who are happily driving around in electric cars that are largely or entirely powered by solar panels on their own house roofs.
A tax on commercial charging outlets?
There are problems with only taxing commercial charging units while leaving home charging untaxed, and an added complication is that the State Governments have the registration details of all of the vehicles, so they probably need to be involved.
States are unlikely to want to share these details with the Federal Government unless they get a funding cut from the tax either directly or through road funding.
It is unlikely that people will be forced to follow the discredited Victorian tax which required drivers to photograph their odometers to send in so that the tax can be worked out by distance given how clumsy that was.
However, some way of calculating our kilometres travelled and weight needs to be found for the introduction of any road user charge.
Include congestion charge as well?
Then again, perhaps the reform task could be made broader and the suggestion from way back in 2010 in the Henry Tax Review for a congestion tax and heavy vehicle charging by mass and distance could once again be considered.
Congestion is costly so tackling it at the same time could be useful, with advances in GPS monitoring possibly used to charge all cars and trucks a per kilometre fee related to weight, although there are obviously civil liberties and technical barriers there.
Raising GST?
Perhaps even raising the GST a little over time to replace fuel excise is worth considering, given it is a large and efficient existing tax that already redirects revenue back to the states.
There is little doubt this is a complex and difficult problem to tackle but that doesn’t mean it should be simply left on the back burner indefinitely.
Whoever wins the Federal Election this year should look to act early in their term and not let the issue of fairness across generations and between road users to be left unaddressed by the gradual electrification of the road network.
It is estimated that a decade ago tobacco and fuel excises raised around 6% of GDP.
Now that number has fallen to about 3% and could fall all the way to 0.5% or lower as ICE cars and trucks are gradually replaced.
As one of the most important indirect taxes collected by the Federal Government, doing nothing is not really a long-term option and the longer the issue remains unresolved, the more political capital it will take to introduce a replacement tax.