Labor extends EV tax break to encourage cheaper vehicles amid soaring fuel prices | Electric vehicles
As Australians flock to buy electric vehicles due to rising fuel costs linked to the Iran war, Labor has opted to keep the electric vehicle discount in full for another year.
But next Tuesday’s budget will include a series of “sensible changes” that will scale back support over the next three years; because the government recognizes the need to offer a “more fiscally sustainable” tax incentive for electric vehicles due to the ballooning costs of the scheme.
The electric car rebate was introduced at the beginning of 2023 and saves thousands of dollars on the cost of renting an affordable EV through an exemption from fringe benefits tax (FBT).
Finance Minister Jim Chalmers and Energy Minister Chris Bowen announced in a joint statement on Monday evening that the policy will be extended until the end of March 2027.
The full FBT rebate will only apply to vehicles costing less than $75,000 through early April 2029.
“The new rules will encourage manufacturers to offer more affordable and cheaper electric vehicles in the Australian market,” Chalmers and Bowen said.
“Current new vehicle efficiency standards have seen a dramatic increase in the availability of affordable EV models, so now is the time to focus the FBT exemption on these cars.”
In this second phase, a 25% FBT discount will be given to electric vehicles that cost more than $75,000 but are priced below the luxury car tax threshold, currently set at $91,387 for fuel-efficient vehicles.
Chinese automakers like BYD now sell EVs for as little as $26,000.
In the third and final stage, from April 1, 2029, the electric vehicle incentive will be limited to a 25% fringe benefit tax deduction for all electric vehicles below the luxury car tax threshold.
“We will continue to provide support to families who choose to switch to electric vehicles as we move to a permanent 25% discount on FBT for these cars,” ministers said in a statement.
The unexpected popularity of the scheme resulted in huge cost increases that diminished its appeal in Canberra before the Iran war and triggered concerns among advocates that the government would give up on the discount.
When Labor first floated the policy ahead of the 2022 election, it was estimated it would cost $605 million over the seven years to 2029.
The Treasury last estimated the cost would be $10.1 billion in the same period, according to the Grattan Institute.
But the closure of the Strait of Hormuz at the end of February and the subsequent rise in fuel costs led to increased interest in electric cars, which may have changed the political calculus on the policy.
EVs accounted for 15% of new car sales in March, or twice the share of a year ago, according to the Federal Chamber of Automotive Industries.
According to data from the Electric Vehicle Council, sales of Tesla and Polestar vehicles increased by 47% in the first four months of this year compared to the same period last year.
Four weeks after the conflict in the Middle East began, and with unleaded prices rising above $2.50 a liter in late March, Anthony Albanese energetically defended Labour’s support for electric cars and home batteries despite cost explosions.
“I don’t think there is anyone today who buys an electric vehicle and regrets their decision at this point,” the Prime Minister said.
