EV tax rebate loses power as costs overload scheme
The government’s economic advisory body has slammed the tax break for electric vehicles as costly and inefficient, but it will be kept in the budget, albeit in a reduced format, to rein in costs.
Finance Minister Jim Chalmers and Energy Minister Chris Bowen will announce Tuesday that the incentive, which allows employers to avoid paying fringe benefit tax on EVs under $91,387 purchased through a renewed lease, will be converted to a 25 percent rebate.
The cost of the tax cut to the federal budget has risen in recent years from an initial $90 million to $1.35 billion in 2025/26 and was expected to rise to $3 billion in 2028-29.
But gradually tightening the stimulus will save taxpayers $1.7 billion over four years from the 2026/27 budget.
Starting in April 2027, the full tax credit will only apply to EVs costing $75,000 or less; Vehicles over $75,000 but below the luxury tax threshold will only benefit from a 25 percent discount.
From April 2027, all EVs below the luxury tax threshold will only benefit from a 25 percent rebate.
The luxury tax threshold is $91,387 but increases with inflation each year.
Electric vehicles benefiting from the discount will continue to be exempt from import tariffs.
In a joint statement, Dr Chalmers and Mr Bowen said the changes would provide a fairer and more financially sustainable tax treatment for electric vehicles.
The growth in the program has coincided with a rapid increase in electric vehicles, which has accelerated since conflicts in the Middle East caused oil prices to rise.
Electric vehicles accounted for 14.6 percent of all new car sales in March, up from 7.5 percent in March 2025, according to figures from the Federal Chamber of Automotive Industry.
While the scheme will help encourage electric vehicle uptake, the Productivity Commission found the incentive to be the costliest of the government’s existing policies to reduce carbon emissions, at between $987 and $20,084 per tonne of CO2 reduced.
Lachlan Vass and Amy Tramontozzi, researchers at the independent think tank e61 Institute, identified two major flaws in the plan.
The incentive increases as the cost of the vehicle increases, thus encouraging people to buy more expensive electric vehicles.
Second, the subsidy it provides increases with the recipient’s income, thus disproportionately benefiting high-income earners.
Mr Vass and Ms Tramontozzi argued it would be more effective to reprioritise funds from the plan to expand EV charging infrastructure.
The changes come as Labor tries to rein in a predicted $36.8 billion deficit in the 2025/26 budget, due to be announced on 12 May.
Dr Chalmers said on Monday the budget would be the government’s most responsible yet.
He said the government would save more than it spends and make upward revisions to revenue.
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