Why Victoria’s new EV tax is a win for road users

How Victoria’s new tax on zero-emissions vehicles should benefit all road users.

RACV has welcomed Victoria’s new tax on electric and other zero-emissions vehicles as a first step towards creating a fairer overall user-pays road system. 

Some critics have claimed the 2.5 cents per kilometre levy on electric vehicles, announced in the recent state budget, will stifle the uptake of zero-emissions vehicles, which already lags behind many other parts of the world.

But RACV senior engineer vehicles, Nicholas Platt, says the EV levy lays the foundation for a fair and efficient user-pays system to replace existing federal and state road taxes. 

He explains that where motorists driving conventional petrol-fuelled cars currently pay a fuel excise of about 42 cents a litre, which funds road maintenance and infrastructure, electric vehicles avoid the charge – even though they use the same roads. 

“As the number of zero-emissions cars on our roads continues to grow, the EV tax will make up for lost fuel excise, so authorities can continue to fund and maintain Victoria’s roads,” he says. 

Nicholas says the inclusion of the new tax in the state budget, which follows South Australia as the world's first jurisdiction to announce a distance-based EV levy, is also an important first step towards transitioning to a broader transport network pricing scheme over time.  

“RACV has long advocated for a fairer, more efficient and transparent user-pays system to replace the current network of state and federal taxes”, he says.  

Such a user-pays system might see the abolition of vehicle registration fees and all road users charged according to vehicle type and the time and distance travelled – with higher fees charged for travel at peak times and on busy roads.  

Nicholas says the Victorian EV levy, at 2.5 cents per kilometre, is unlikely to discourage the uptake of zero-emissions vehicles. However, he says RACV would also like governments to investigate new incentives to encourage people to switch to low-emissions vehicles.  

The state government expects its new EV levy to raise $30 million over the next four years, but while the budget has also allocated funding for new fast-charging infrastructure for electric vehicles, money raised from the levy is not directly linked to EV infrastructure.

Victoria’s new 2.5 cents/km EV charge will apply to electric and other zero-emissions vehicles, including hydrogen-powered vehicles, while a 2.0 cent/km charge will apply to plug-in hybrid-electric vehicles from July 2021.

The charge means EV drivers travelling 15,000 kilometres a year will pay $375, which is less than the fuel excise paid by owners of many petrol or diesel-fuelled vehicles. A Toyota Camry driver, for example, using 8.3 litres of petrol per 100 kilometres, would pay an estimated $526 a year in fuel excise, while a Toyota Corolla driver, using six litres per 100 kilometres, would pay about $380 in excise.  

Nicholas says there are still some questions about how the charge will work for plug-in hybrid electric vehicles, which use either petrol or an electric battery.

“If they run their vehicle on petrol then they have paid fuel excise, but how do you separate the kilometres they have driven using an electric battery to avoid double-charging them?” he says. 

The nation’s peak motoring body, the Australian Automobile Association, of which RACV is a member, has long argued that EVs should be brought into the road-tax system, initially at a discounted rate to avoid discouraging their take-up.

But while the association welcomes the introduction of EV charges, national director Michael Bradley says there needs to be a national system to enable funding for transport projects. 

“The technological shifts we’re seeing in the car market are good for consumers and the environment, but they are also going to significantly undermine the federal budget and its reliance on fuel-excise revenue to fund transport projects,” he says.

“The federal government must step in and ensure tax changes are nationally consistent, equitable, and progressed in a manner that does not disincentivise technological transition.”