A groundbreaking ruling by the High Court has rejected Victoria’s electric vehicle (EV) levy, potentially creating a significant financial gap in future state budgets. This development also pressures the federal government to consider implementing a national road-user charge. The court’s decision affects the EV levy and brings into question the legality of other state taxes, such as those related to the transfer of goods, motor vehicle duties, vehicle registration fees, and waste disposal levies.
In this landmark case, two plaintiffs from Victoria, Chris Vanderstock and Kathleen Davies, successfully argued that the state of Victoria lacked the constitutional authority to impose a road-user charge on EV drivers. This decision caught many by surprise, including New South Wales Premier Chris Minns, who emphasised that road-user charges generate substantial revenue for the state treasury and a reevaluation of how road projects are funded in NSW is now necessary. NSW and Western Australia had previously planned to introduce road-user charges for EVs starting in 2027.
Victoria’s EV tax had been widely criticised by car manufacturers, industry groups, and environmentalists, earning it the dubious title of the “worst electric vehicle policy in the world.” The Victorian Ombudsman also found that the legislation was being unfairly administered.
The plaintiffs, Vanderstock and Davies, were represented by Equity Generation Lawyers, the same legal firm that had previously acted on behalf of eight teenagers in a climate-related court action against former federal environment minister Sussan Ley.
At the heart of the matter, the High Court had to determine whether the authority to levy a charge like the EV tax belonged to the federal government or the individual states. The court ultimately ruled that the EV tax qualified as an excise, which, according to the Constitution, only the federal government can impose.
David Hertzberg, a senior associate at Equity Generation Lawyers, stressed the need to incentivise people to switch to cleaner cars instead of taxing electric vehicles, especially considering Australia’s lagging electric vehicle adoption.
In 2022, the transport sector was responsible for 19 percent of Australia’s carbon emissions, making electric vehicles crucial for achieving the country’s emissions reduction targets.
The Australian Automobile Association suggested that the federal government should seize this opportunity to reform taxation by including electric and other zero-emission vehicles in the road-use tax system, initially at a discounted rate to encourage their adoption.
However, the transition to electric vehicles will have positive environmental and fiscal impacts due to declining fuel excise revenue, as outlined in the federal Treasury’s 2023 Intergenerational Report.
Following the High Court’s decision, Green’s leader, Adam Bandt called for the federal government to reject the idea of imposing an EV tax and focus on increasing taxes on corporations and wealthier individuals instead.
Chris Vanderstock, one of the plaintiffs and an electric vehicle owner, expressed his satisfaction with the High Court’s decision, stating that it paves the way for fairer policies that acknowledge the benefits of EVs.
The legal challenge stemmed from Victorian Treasurer Tim Pallas’s controversial decision to introduce a levy in 2021 that charged electric vehicle drivers based on their mileage.
Pallas mentioned that he would assess the consequences of the ruling but did not commit to reimbursing those who had already paid the tax. Regarding its impact on other state taxes, he indicated that the government needed more time to evaluate before making any determinations.
In the fiscal year 2022-23, Victoria’s EV road-user charge generated $3.9 million.
Marion Terrill, director of the Grattan Institute’s transport and cities program, argued that both state and federal governments must reconsider their approach to taxing drivers and funding infrastructure in light of the impending increase in electric vehicle adoption. While the ruling prohibits taxing drivers per kilometre, it still leaves room for implementing fees for driving in congested areas during peak hours.
Behyad Jafari, the head of the Electric Vehicle Council, urged the federal government to develop a unified national approach to road-funding reform and accelerate the adoption of electric vehicles. He also called for refunds for those who had been charged the EV tax.
Earlier in the year, the federal government introduced Australia’s first national electric vehicle strategy, which included measures to support charging infrastructure investment and battery recycling programs. However, it did not specify targets for electric vehicle adoption or provide details on fuel efficiency standards, which could help limit emissions and promote EV imports.
A spokesperson for federal Treasurer Jim Chalmers acknowledged the court’s decision and indicated that the government would provide further information in due course.
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