Why electric vehicle owners should be hit with more road taxes

Electric vehicles have been on Australian roads since Tesla arrived in 2010, yet EV owners still do not pay any form of road-user tax – unlike the 15 million owners of internal combustion engine petrol and diesel vehicles, who pay 51.6c a litre in fuel excise. This fetches the federal government more than $17bn per year in revenue.

The money raised helps fund the development and maintenance of our roads; the same roads that EV drivers share but do not contribute towards. As such, for the 98 per cent of the driving population who do not own EVs, they are likely to be jumping for joy at the prospect of an EV road-user tax scheme.

The government is in a tricky position. On one hand they want to get more EVs on the road in line with their views to reduce carbon emissions and combat climate change. On the other hand, they do not want to see dwindling fuel excise revenue as more EVs hit the roads.

Their public rhetoric is one of a softly-softly approach, but behind closed doors I imagine the wheels are turning to get the EV tax in place ASAP.

The federal government is expected to follow the NSW model, which would have been implemented in 2027 had the Victorian government scheme not been overruled in the High Court. EV users are likely to pay somewhere between 2.5c to 3c per kilometre to drive on our roads.

Given that the average passenger car drives 11,000km per year, the EV road-user charge is likely to cost $275 to $330 per year for every EV user. Whether that is enough to put the brakes on the EV market is yet to be seen.

I don’t think adding roughly $25 per month to the running cost of the average EV owner will deter uptake, and in time will be forgotten as a “tax” and simply be another bill to pay, like the car registration.

I purchased an EV in 2022 as soon as the federal government introduced the tax perks encouraging their uptake.

Under a novated lease, buying an EV under $91,387 was one of the biggest tax breaks going around with 100 per cent of my pre-tax income available to fund the finance and operating cost of the car.

In other words, buying an EV represented a 47 per cent tax break. It was too good to drive past. On top of this, I don’t have to spend $50 to $100 each week on petrol. It brings a smile to my face each time I drive past a petrol station. I recharge at home using the solar panels and if I need to charge at night I have an electricity plan between midnight to 6am with a very low rate.

I’m an EV owner and for a living I advise people on how to minimise tax. And yet, here I am advocating a new tax.

EV owners like me should also pay for road maintenance costs, especially given EVs are heavier than the average ICE equivalent.

EVs put more strain on our roads. The federal government needs to establish a clear plan on how EVs will contribute their fair share to road maintenance costs, because it should definitely be more than zero as is currently the case.

Are EVs still worth it?

A flurry of new Chinese EV manufacturers has pushed EV prices down and closed the financial gap when comparing total operating costs of an EV v an ICE vehicle.

Traditionally, the biggest problem with EVs has been their high purchase cost and large depreciation hit. EV technology moved fast and each new model had a bigger battery capacity and better electric motor meaning a weak aftermarket for pre-owned EVs.

But today, EV technology is more mature and entry prices are lower. This makes EVs more financially viable when all ownership costs are considered such as depreciation, financing, fuel, servicing and insurance. And with the tax perks under the Electric Car Discount Bill if you purchase an EV under a novated lease, EVs really start to look good.

In their last annual cost report, Victorian motoring association RACV found that for the small car segment below $40,000, the total operating costs for several vehicles were within $100 per month of each other regardless of whether they were ICE, hybrid or electric powered.

RACV found that a petrol Hyundai i30 costs $1228 per month while a full electric BYD Dolphin came in slightly lower at $1209 per month. The winner was the Toyota Corolla hybrid costing $1137 per month. Of note, if you are able to charge your EV at home off solar panels or at the shops for free, then the EV BYD Dolphin closes the gap on the Toyota Corolla hybrid in terms of which is cheaper to own.

But what about 10 years down the track when the EV needs its batteries replaced, is this a deal breaker?

MG Motor director of EV and hybrid business Stuart Mitchell says its challenging its engineers “with the ideal scenario of a step better than like-for-like”.

“Imagine if it was actually upgrading to the latest, higher capacity, longer lifespan battery tech when it eventually comes time for replacement,” Mitchell says.

As long as the replacement cost is not through the roof, EV owners may choose to replace their EV battery, especially if it provides extra driving range.

EVs are fast becoming the most cost-effective choice of vehicle to own, with 350,000 of them already on our roads. As more EVs hit our roads, the federal government will need to invest further in public EV infrastructure to support them. Otherwise, we could have a situation with long queues of EVs waiting to recharge, reminiscent of what happens in parts of America such as California where EVs are popular.

James Gerrard is principal and director of financial planning firm www.financialadvisor.com.au and also owns an electric vehicle

This article first appeared in The Australian as Electric vehicle owners should be hit with more road taxes