The uptake of electric vehicles in Australia has received another boost after the federal government used the Mid Year Economic and Fiscal Outlook (MYEFO) to make significant changes to the eligibility for luxury car tax exemptions.
The federal government imposes a luxury car tax on vehicles that cost more than $76,950, although the tax (30c for every dollar above that level) only applies to so-called fuel efficient vehicles that cost more than $89,332.
This is an important incentive, particularly for vehicles bought under leasing arrangements and the corporate fleet market, which accounts for half of all new car sales.
Treasurer Jim Chalmers on Wednesday said the government will tighten the definition of “fuel-efficient” vehicles from 7 litres per 100kms, to 3.5 litres per 100kms, effectively ruling out a number of high end cars, and many mild hybrid models.
The new definition will come into effect from July 1, 2025, and is expected to increase revenues by around $150 million in the first two years it is in place.
“These changes will encourage greater take-up of fuel-efficient vehicles, consistent with the Australian Government’s National Electric Vehicle Strategy,” the budget update papers say.
“This measure is part of the Australian Government’s commitment to reduce greenhouse gas emissions by 43 per cent by 2030, and to achieve net zero emissions by 2050.”
The move was welcomed by Behyad Jafari, the head of the Electric Vehicle Council, who said it is a recognition that car technology has changed quickly in recent years.
“Whatever your view on the LCT, this change represents two things,” Jafari said in a LinkedIn post.
“First, a recognition that auto tech has changed considerably since the thresholds were first designed and recognises that our expectations of ‘fuel efficient vehicles’ today are rightly quite different.
“More importantly, that unlike unimaginative calls for premature new taxes on EVs, a smart government can reform all the taxes levied on car purchase and use – with a view to encouraging EV uptake, not stalling it.”
This comment is a clear reference to the proposed new road vehicle taxes, which were ruled illegal by the High Court when imposed by individual states,
“The federal government has already committed considerable funds to accelerating the deployment of EVs and Charging Infrastructure,” Jafari wrote.
“This step shows that when considering near term revenue impacts (as fits the Treasurer’s brief), the federal government is willing to take a smarter, more considered approach.”
The legacy car industry, however, howled in protest. The FCAI, which is dominated by Japanese car makers who have bet their companies on hybrids, described the changes as “an ill-conceived money grab.”
FCAI boss Tony Weber said LCT should be scrapped, as it was only introduced to protect the now non-existent Australia car manufacturing industry. ” It’s now just a handbrake on the industry bringing the best fuel efficiency and safety technologies to Australian consumers,” he said.
Meanwhile, the EV industry is still awaiting news of the details of the federal government’s proposed fuel efficiency measures, and whether this will be an ambitious target that will help Australia catch up with the rest of the world, or allow it to remain a dumping ground for dirty and inefficient vehicles.
The government had suggested the fuel efficiency measures would be released by the end of the year, but there are now expectations it could be pushed into nearly 2024.
Giles Parkinson is founder and editor of The Driven, and also edits and founded the Renew Economy and One Step Off The Grid web sites. He has been a journalist for nearly 40 years, is a former business and deputy editor of the Australian Financial Review, and owns a Tesla Model 3.