Road tax to replace fuel excise – for EVs too

Infrastructure Partnerships Australia is calling on state governments to tax electric vehicles (EVs), and at least two states are reportedly considering the recommendation.

The lobby group, which labels itself an "independent think tank and executive member network spanning the public and private sectors", today issued a press release renewing the call for governments to implement "a distance-based charge on electric vehicles".

And in an article published today by

The Berejiklian government in NSW is expected to follow suit after observing the reaction in Victoria, according to the report.

"Treasurers around the country are looking for ways to boost the productivity of their economies, and they need look no further than levelling the playing field on how we pay for roads," said Infrastructure Partnerships Australia CEO, Adrian Dwyer, in today's press release.

"Right now, a person driving a petrol car is paying fuel excise at the pump, while electric vehicle drivers pay nothing to drive on the roads.

"Applying a simple distance-based charge to electric vehicles will ensure every motorist makes a fair and sustainable contribution to the use of the roads and will help secure a vital stream of transport funding for generations to come.

"While a shift to electric vehicles could be great for the environment, we still need to make sure we can fund transport services to help people spend less time in their cars.

"That is why Infrastructure Partnerships Australia is calling for a road user charge on electric vehicles.

"Governments have a brief window of opportunity to implement this whole of network reform before there is an electric car in every driveway, but they have to move quickly."

In a report available to download, Infrastructure Partnerships Australia argues that the current disparity in price between conventional vehicles and EVs will eventually dwindle to nothing, at which point the EV will be cheaper to run, even if the owner is paying an RUC.

Tied up in the argument that the RUC will shore up diminishing government revenue from the fuel excise, Infrastructure Partnerships Australia offers up the idea that the RUC will act like a congestion tax, and its plan would preclude owners of internal-combustion vehicles from paying more.

So the fuel excise tax would remain in place for owners of those vehicles, who are likely to be consumers on low incomes or rural residents.

The press release from Infrastructure Partnerships Australia is an echo of a statement issued three years ago by the federal government's own authority, Infrastructure Australia, which is barracking for the federal government to impose the RUC, rather than state governments doing so.

If a state government was to impose an RUC first, it would reap the benefits of a new revenue stream while the federal government's fuel excise revenue would continue to decline.

Although EVs cop the blame for the shrinking revenue pool from fuel excise, a study by government economist Rob Dossor reveals that government revenue from fuel excise in the 2013-14 financial year was worth $10.8 billion, or 39 per cent of public-sector road-related revenue*. A decade earlier fuel-excise revenue was worth 44 per cent of the total.

So fuel excise has been sliding for some time. Put that down to more SUVs on the roads of Australia (half of them diesel-engined), more hybrids, more diesel-engined passenger cars, improving thermal efficiency in conventional engines, smaller engines, advanced new transmissions, lighter cars, a more sophisticated road network... and electric vehicles.

Like Dwyer at Infrastruture Partnerships Australia, Dossor argues that an RUC would be a de facto congestion charge, and Dossor reinvokes the point made previously by the Grattan Institute: more than 20 per cent of Sydney road users during the morning peak are driving somewhere for reasons unrelated to work.

With the excise an invisible tax – consumers don't realise how much of the cost of fuel is lining government coffers – there is no 'price signal' to deter drivers using their vehicles during peak hours, or taking public transport instead. A combination of RUC and congestion charges would fix that, Dossor suggests.

But the idea raises all sorts of questions.

In some quarters, the RUC is bound to be challenged as a further disincentive to reduce CO2 emissions, with the federal government already perceived to be doing nothing to encourage EV sales in Australia.

The voting public may fail to grasp any benefit in the RUC, when fuel excise is already syphoned off into consolidated revenue rather than paying for road-network maintenance, as originally intended.

Would the RUC apply to battery-electric vehicles alone? Or would 'electric' vehicles include hybrids and plug-ins? Infrastructure Partnerships Australia would exclude hybrids from the charge being levied, but Dossor's study for Parliament implies that hybrids would be charged the RUC also.

Finally, what would be the federal government's response to a state government introducing an RUC when the revenue from fuel excise is on the wane?

Victoria appears odds-on favourite to introduce an RUC. But if the southern state pulls the trigger it could result in the slaughter of the federal government's fatted cash cow.

Interesting times.

* The aggregate of state-levied vehicle registration fees and stamp duty, plus Commonwealth-levied fuel excise, GST (and probably import duties and luxury car tax as well)