EVs drive budget black hole, prompting switch to road user charges

The Federal budget faces a black hole of hundreds of million of dollars as more drivers take on electric vehicles and stop paying fuel excise charges.

Treasurers will meet next Friday to discuss options for road user charges after the economic roundtable led by Jim Chalmers agreed that how drivers cover the costs of building and repairing roads needs to change.

Petrol excise will contribute $7.45 billion to Federal coffers this financial year, rising to $8.1 billion by mid-2029.

Diesel taxes – primarily paid for heavy vehicles like trucks and buses – add even more, with the forecast for $17.85 billion this year rising to more than $20 billion over the next four years.

More than half the excise revenue is reinvested into building and maintaining roads.

But this money is at risk as the take-up of EVs accelerates.

Government forecasts show passenger vehicles’ emissions are set to drop by 12 per cent between now and 2030.

Overall transport emissions are set to drop 3 per cent after the adoption of new fuel efficiency standards.

If the petrol excise revenue drops in line with these forecasts, it could fall between $243 million and $972 million annually by 2030.

Dr Chalmers said on Thursday that while Treasury hadn’t calculated fresh figures since the roundtable, it was working on the assumption that the revenue base would change “quite substantially” over several years.

“Over time, our petrol excise will decline eventually, I think, to nothing or almost nothing,” he said.

“And the way that trajectory unfolds will partly be about take-up, including take-up of hybrids.

“We will take the time to get this right, and part of that means discussing it with my state and territory colleagues.”

Hybrids and plug-in hybrids made up more than 19 per cent of all new vehicle sales in the year to June and battery EVs accounted for another 7.5 per cent, according to the Australian Automobile Association.

Almost twice as many used cars as new are sold in Australia each year.

However, the rollout of electric trucks and buses is far slower and heavy vehicles either already pay a road user charge or receive tax rebates because they’re not driving on public roads.

But the Grattan Institute’s Alison Reeve said electric trucks avoided paying for the damage they caused to roads because they weren’t part of the fuel excise/fuel tax credit system.

She said any move to revisit fuel excise and road user charges should take into account all damage done by vehicles – air pollution, climate change, road damage, traffic congestion and accidents.

“For road user charges, that would mean shifting to a charge for all vehicles linked to the weight of the vehicle and how far it travels every year – not just electric vehicles,” she said.

Dr Chalmers has indicated any national scheme will likely only apply to EVs.

NSW has already legislated a road user charge for EVs and plug-in hybrids that will kick in from the earlier of July 2027 or when EVs make up 30 per cent of new car purchases.

NSW State Treasurer Daniel Mookhey will be leading the discussion next week, although the options are being drawn up by Victoria and South Australia, and said his government didn’t intend to repeal its scheme.

While take-up of EVs and hybrids has increased with policies such as tax breaks on novated leases – which has far exceeded the government’s forecasts for adoption – Climateworks Centre transport lead Helen Rowe warned that it was still relatively low.

That could be jeopardised “if it comes across to people that EVs are being charged something that other vehicles aren’t, or that it’s difficult to compare the costs between combustion engine and EVs”, she said.

“It’s going to be a risk for Australia reaching its emissions goals if we slow down either the transition to EVs or electric trucks.”

The Electric Vehicle Council echoed this sentiment, saying it backed fair road user charges but they would be premature if introduced before EVs made up about a third of the national fleet.