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What happens when electric cars run over fuel excise?


A looming technological shift puts a large question mark over the future of Australia’s 40.9c/litre fuel excise.

Your next petrol receipt will tell you more than you think about an emerging tax and transport conundrum, and why it will be so hard to prevent.

As revenue raising goes, fuel excise must be Treasury’s golden child. It’s unavoidable for most of Australia’s 16 million motorists and invisible to all. Federal law dictates your next fuel receipt will detail the GST you’ve paid, but you won’t see fuel excise’s far greater contribution.

Not surprisingly, nearly four out of five Australians are today unaware they pay more than 40 cents per litre in tax. For decades, this ignorance has been kind to governments and budgets alike. But technological shift has placed a large question mark over fuel excise’s $12.4 billion annual contribution, and a hard conversation is due.

The unfairness of excise is well understood by policy makers: drivers of different cars already pay different prices to use the same road. The economically underprivileged are over-burdened because they own our older, thirstier vehicles. They’re also likely to drive more, thanks to their longer commutes, poorer public transport options and often regional location.

But the imminent market penetration of the electric car, which will transport owners out of the fuel excise system altogether, is set to turbo-charge Treasury’s dilemma: How best to consider financial support for a new technology that will simultaneously undermine revenue?

Australia’s Electric Vehicle Council is championing policy support that would ensure Australia’s fleet would look like Norway’s, with more than 55 per cent EV penetration in 2030. It’s an ambitious goal, and one that would likely cost the federal budget more than $15 billion in foregone fuel excise.

The Australian Greens recently announced a policy that sets a 100 per cent EV fleet target for 2030, yet remain silent on the $19.7 billion fuel excise short-fall created.

The need for an Australian transport market capable of better informing supply and demand has been well articulated by the Productivity Commission, the Harper Review, the Henry Tax Review, and Infrastructure Australia. The AAA and Australia’s motoring clubs have long seen the problem coming and are up for the reform challenge ahead.

Slow progress

Which is why industry observers were as pleased as they were surprised, to see a federal government finally take the issue on in November 2016, by announcing “a study, led by an eminent Australian, into the potential benefits and impacts of road user charging”.

The government is making slow progress. Sixteen months post-announcement, no “eminent Australian” has been announced and no study has commenced.

But the stalled work is becoming more important, not less. Given the range of vehicle technology available to us, we urgently need to examine how our transport market can be allowed to work. Knowing who is using what roads, when, how often, and in what sort of vehicle, can only improve funding allocation decisions.

But such a model appears as far away as ever. And if we are to ever put anything like it in place, supporters will in the short term need to focus on a very simple notion: You can’t fix a problem that nobody knows exists.

The task of convincing Australians that their road charging system is out of date takes on some scale when you consider that one-third of Australian motorists do not know what excise is, or that they pay fuel tax at all.

To win public support for reform, the illusion of tax-free motoring will have to be brought to an end. The electorate will first have to be told that the system exists, that they have been paying for it, and that it is largely broken.

Not since the GST’s introduction has the government had such a project on its hands.

The political challenges associated with a government telling every motorist they’re responsible for 40.9 cents per litre are obvious. But so too are the consequences of continuing to kick this can down the road.

By Michael Bradley
Chief Executive
Australian Automobile Association

First Published in the Australian Financial Review 16 April 2018

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