EV tax breaks to be slashed from April next year
A generous tax break on top-end electric vehicles will be rolled back from next year as the government wields the ax to fight cost rises ahead of a crucial budget due next week.
The move is expected to save the government $1.7 billion over five years, while electric vehicle buyers will pay thousands more for renewed leases.
The electric vehicle fringe benefits tax exemption, which currently applies to vehicles purchased for less than $91,387 through a renewed lease, will begin to phase out starting in April 2027. Starting then, the full rebate will only apply to electric vehicles costing $75,000 or less.
Finance Minister Jim Chalmers has made savings a key priority for the budget as the global oil shock caused by the US-Israeli war against Iran has rattled global markets, driven up inflation at home and forced the government into expensive cost-of-living aid such as a fuel excise tax cut.
The cost of an electric vehicle tax break designed to lure consumers away from gas-powered cars has skyrocketed as high-income earners sign up for cheap deals that reduce their taxes.
Energy Minister Chris Bowen said the rapid adoption of the incentive and the proliferation of more affordable models in recent years meant the rebate needed to be more targeted.
“Four years ago there were no electric vehicles under $40,000, now there are about 10. This has allowed us to better align tax exemptions going forward and focus on more affordable models,” Bowen told ABC radio on Tuesday.
He said phasing out the tax break would allow Australians to plan to make the purchases they want.
In the first stage, full exemption will be valid until March next year.
Then, starting in April 2027, vehicles between the $75,000 and $91,387 luxury car threshold will receive a 25 percent reduction in fringe benefit tax.
Finally, from April 2029, the exemption for all vehicles below the luxury car tax threshold will be reduced to a permanent 25 percent reduction.
Existing leases will not apply and eligible vehicles will continue to be exempt from import tariffs.
This imprint revealed in March that the government was considering limiting the tax break to affordable models as EV uptake on renewed leases far exceeded government forecasts.
The cost of the policy increased from $1.9 billion to $5.1 billion between 2022-23 and 2026-27. In the 2028-29 fiscal year, the cost was expected to increase further and reach 2.8 billion dollars.
Bowen said the changes would save $1.7 billion in budgets based on forward-looking estimates, and the phase-out, which would benefit cheaper models for longer, would encourage manufacturers to introduce more affordable options to the Australian market.
Asked why the tax would not be scrapped entirely given the pressures on the budget, Bowen told the ABC that electric vehicles provide a “huge public and social benefit”.
“Of course there are carbon impacts, but there are also respiratory health impacts,” he said.
Before the war in Iran, this imprint reported that the budget-cutting cabal, led by Treasury Secretary Jim Chalmers, was pushing for a significant rollback of the tax concession, which had grown to 15 times its original estimated size.
However, the war changed the government’s thinking. Energy Minister Chris Bowen and other members of the government have pressed for the measure to be maintained for a while to boost EV uptake, which has accelerated due to the oil shock.
The government moved into a slower phase-out than originally planned.
Another policy in this area, road user fee schemes that would force electric vehicle drivers to finance road maintenance, will not be included in the budget.
with Paul Sakkal
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Brittany Busch is the federal politics correspondent for The Age and the Sydney Morning Herald.Connect via email.
