Australian Government to Wind Back EV Tax Break Amid Soaring Costs

Lead

The Australian government has announced a wind-back of its popular electric vehicle (EV) fringe benefits tax (FBT) discount, a move that will save the budget $1.7 billion over four years. The decision, confirmed by Treasurer Jim Chalmers and Climate Change Minister Chris Bowen, comes as the cost of the scheme has ballooned far beyond initial forecasts, driven by an unexpected surge in EV adoption.

Under the changes, the full FBT exemption will be retained for another year before being phased out in stages. From April 2027, only electric vehicles costing less than $75,000 will be exempt from FBT, while those above that threshold will be taxed at 75 per cent of the usual rate. From April 2029, all EVs will be taxed at that discounted 75 per cent rate.

Coverage comparison

Reporting on the announcement has focused on different aspects of the policy. ABC Australia's coverage highlighted the wind-back's budget savings, noting that the government expects to save $1.7 billion over four years. The Guardian's coverage, meanwhile, emphasised that the government will retain the discount in full for another year despite the scheme's cost blowout, quoting ministers who described the changes as "sensible" and aimed at making the tax incentive "more financially sustainable."

Both outlets reported the phased approach, though ABC Australia's detailed breakdown of the new thresholds and tax rates was more extensive.

Key claims

The electric car discount was introduced at the start of 2023 and has cut thousands of dollars from the cost of leasing an eligible EV through an exemption to FBT, as reported by The Guardian. The scheme has been adopted at a rate far beyond the government's expectations and is now expected to cost $10.1 billion over seven years, according to The Guardian, while ABC Australia reported that the scheme is expected to cost $1.35 billion this year alone, well above the initial forecast of $90 million.

Several claims about the scheme's effectiveness were carried by ABC Australia. A government review found that the $2 billion tax discount for electric cars has abated two days' worth of Australia's annual carbon emissions, avoided about 2.2 million tonnes of emissions, and resulted in an additional 64,000 battery electric vehicle sales since its beginning. The Productivity Commission estimated the tax discount's abatement cost to be between $987 and $20,084 per tonne of emissions reduced.

ABC Australia also reported that second-hand EV sales leapt by 138 per cent between February and March, and cited a Redbridge poll finding that cost and the FBT exemption are the main catalysts for buying an EV.

The scheme has faced criticism as "middle class welfare," as noted by ABC Australia, but the government regards its popularity as a success. Climate Change Minister Chris Bowen defended the scheme, comparing it to early investments in rooftop solar, saying it "created an industry" and supercharged EV uptake.

The wind-back will be implemented in phases: from April 2027, the full FBT discount will only apply to vehicles costing under $75,000; during this second phase, EVs costing more than $75,000 but below the luxury car tax threshold (currently $91,387 for fuel-efficient vehicles) will receive a 25 per cent FBT discount. From 1 April 2029, all EVs below the luxury car tax threshold will receive a 25 per cent FBT discount, while "luxury" EVs and used EVs from before July 2022 will pay the full FBT.

Chalmers and Bowen said in a joint statement that the new rules "will encourage manufacturers to offer more affordable and cheaper to run EVs in the Australian market." They noted that current new vehicle efficiency standards have led to a dramatic increase in the availability of affordable EV models.

Perspectives

The government's perspective, as expressed by Chalmers and Bowen, is that the changes strike a balance between continuing to support EV adoption and ensuring the scheme is financially sustainable. Bowen emphasised the scheme's success in creating an industry, while acknowledging the need to focus support on cheaper EVs.

A contrasting perspective comes from critics who have labeled the scheme "middle class welfare," suggesting it disproportionately benefits higher-income earners. However, ABC Australia reported that the scheme's supporters argue it successfully jump-started an EV market that was struggling, and that the flow of EVs into the second-hand market benefits lower-income households.