‘Tax trucks, not electric cars’ – an economist’s controversial proposal

The debate as to whether electric cars should pay a fuel excise equivalent has taken a controversial turn.

As several states propose dedicated taxes for electric cars in lieu of the fuel excise, an Australian economist has suggested a potentially controversial alternative plan for “fairly” taxing road users to cover national road maintenance.

Richard Denniss, Chief Economist at The Australia Institute think tank, has slammed misconceptions that the fuel excise gives electric cars a free ride, suggesting the Federal Government should instead increase taxes on heavy trucks.

‘Tax trucks, not EVs’

Speaking at a webinar titled ‘Stop the Electric Vehicles Tax’ on November 25, Mr Denniss proposed introducing mass distance charging on heavy trucks, arguing trucks do more damage to the nation’s roads each year than regular passenger cars.

“If the government – state or Federal – was interested in genuine transport reform, then maybe some sort of user charge for electric vehicles would be part of that but the first thing you would do is introduce mass distance charging on heavy trucks,” Mr Denniss argued.

“A truck does 20,000 times as much damage as a normal passenger vehicle, but in Australia we don’t recoup the cost of that damage. While the fuel excise you or I pay has been increasing with inflation, [Australia] has actually lowered the excise for heavy vehicles,” he said.

“If we’re really worried about road maintenance we should be worried about trucks.”

Mr Denniss was citing the findings of a research paper published by Philip Laird, Honorary Principal Fellow at the University of Wollongong, which found “a B-Double can cause, per kilometre travelled, 20,000 times the road wear and tear that a family car does”.

Mr Denniss proposed a similar system to the one in place in New Zealand, where heavy vehicles contribute roughly 37 per cent of land transport taxes – compared to the 12.5 per cent trucks currently contribute to government road outlays in Australia, according to Mr Laird.

The truck driver’s take

“Increasing taxes on heavy vehicles would be a tax on jobs, consumers and Australia’s economic recovery,” Acting CEO of the Australian Trucking Association Bill McKinley told CarAdvice.

“The claim that heavy vehicles pay 12.5 per cent of the cost of road expenditure is factually incorrect. On average, it is actually around 22 per cent.

“Trucks and buses make up less than 4 per cent of vehicles on our roads, compared to passenger cars which make up more than 74 per cent. This means the less than 4 per cent are paying 22 per cent of the cost of the road network,” he said.

Mr McKinley noted that heavy vehicles already pay road user charges, which are set by transport ministers and include a fuel-based road user charge and significant registration charges.

“Trucking is a small and family business industry. More than 98 per cent of trucking operators are owner-drivers or small businesses who already work on tight margins,” Mr McKinley said.

“Trucking plays an essential role in our communities and has kept Australia supplied with food, medicine and fuel during the coronavirus restrictions and lockdowns. Increasing taxes on heavy vehicles would put increased price pressure on everyday consumer items.”

Mr McKinley said the ATA has been working to promote policies for accelerating the uptake of low and zero emission vehicles, whilst ensuring a fair and sustainable road user charging system to pay for safer roads.

Meanwhile, Richard Olsen, NSW State Secretary of the Transport Workers’ Union, agreed the transport industry operates under tight margins and is already heavily taxed through toll roads.

Instead of more taxes, Mr Olsen says the companies at the top of the supply chain should be held accountable.

“Transport always finds itself under financial pressure because of the squeeze by retailers, manufacturers and oil companies at the top. These companies at the top of the supply chain should be held to account,” Mr Olsen said.

“A system which lifts standards in transport by holding clients to account over low cost transport contracts would see modern trucks on the road with better fuel efficiency and lower emissions targets,” he said.

“This is the route that should be aimed at. Lifting standards in transport will also save lives on the road – since financial pressure on transport by clients also results in transport operators and drivers forced to delay maintenance on trucks, speed, drive long hours and skip breaks.”

The fuel excise conundrum

Currently, the fuel excise means 42.3 cents from every litre of petrol and diesel sold goes to the Federal Government – with between 40 to 50 per cent of that going towards national transport infrastructure and the balance going into consolidated revenue.

During the webinar, Mr Denniss also dismissed the notion a designated tax for electric cars (like those planned in South Australia and Victoria) is necessary in order to contribute to road maintenance, given a large proportion of the fuel excise goes into general revenue.

“Generally, you tax things you want to discourage and you subsidise things you want to encourage,” he said.

“How do we maintain our public parks? Should we have turnstiles at our public parks and have pay to play? Or do we fund them through consolidated revenue? We don’t say ‘what’s the fair way to tax disabled people so we can spend on disabled people?’”

When asked whether there needs to be an equivalent to the fuel excise for electric vehicles, Deputy Prime Minister and Minister for Infrastructure, Transport and Regional Development Michael McCormack told CarAdvice there was no current plan to introduce a road user charge, but said the Government was considering the revenue implications of EVs.

“Electric vehicles do not currently pay a road user charge, as other petrol and diesel vehicles do,” the Deputy Prime Minister said.

“Charges applied to road users through the excise paid on petrol and diesel is used to pay for the construction and maintenance of roads in Australia.”

(Editor’s note: Mr McCormack’s comment is only partly correct, in that fuel excise is not specifically the means by which infrastructure work is funded – it is merely one stream that goes into general revenue, which funds roads and other projects.)

“There is no current proposal to introduce a road user charge for electric vehicles given the small number of these type of vehicles on Australian roads.

“In November 2019, the Transport and Infrastructure Council, which comprises the Commonwealth and state and territory transport and infrastructure ministers, agreed to consider the revenue implications of the uptake of electric vehicles, which don’t pay any fuel excise for their use of the roads.

“The Federal Government is working collaboratively with states and territories on this issue.”

Tim Washington, founder and director of Jet Charge – a company which builds and maintains an electric charging network – echoed Mr Denniss’ comments in the webinar, adding: “[The] fuel excise goes into general revenue and is not hypothecated to road maintenance – electric car owners pay for roads because they pay tax and road maintenance is paid for out of general revenue.”

READ: Are electric vehicle owners getting a free ride on Australian roads?

‘Tax fossil fuel cars, give the rebate to EVs’

Mr Denniss’ suggestions are similar to ones recently made by Professor Dame Julia King, The Baroness Brown of Cambridge University in the United Kingdom, during a webinar held by Australia’s Electric Vehicle Council on November 17.

“How do you make it more expensive to own a fossil fuel vehicle? You put the tax on the fossil fuel vehicle and make that tax a rebate for the electric vehicle buyer,” Professor King, who is an engineer and the present Chair of the UK’s Carbon Trust, said.

“Emissions from fossil fuel vehicles are contributing to this huge global problem of climate change which you in Australia have experienced appallingly from the fires and drought,” she said.

“We have to get to a position where we really do put a price on carbon and recognise the extraordinarily dangerous impact that’s had. Road charging for everybody plus a polluter pays tax on fossil fuel vehicles is the right way to go.”

A consistent national policy

Taxing electric cars has been a hot topic in recent weeks, after South Australia announced it would impose a road user tax on electric cars from July 2021 and Victoria followed suit shortly after, confirming it would also charge owners of electric and plug-in hybrid vehicles a usage fee from July 2021.

Meanwhile, the ACT went in the other direction, announcing it would offer electric car buyers a $15,000 interest-free loan and free registration, on top of the stamp duty exemption they already receive in the territory.

In response to this litany of state-based policies, the Australian Automobile Association – the peak body for Australia’s motoring clubs – called for a nationally consistent road user charge for electric cars.

“As people move towards electric vehicles and other low emission technologies, revenue from fuel excise is declining, which not only risks road funding, but also means some drivers are paying for roads while others are not, which is neither a fair nor a sustainable model,” an AAA spokesperson told CarAdvice at the time.

Incentives or no incentives?

Electric car supporters are also calling for the vehicles to be subsidised on a Federal level for private buyers much like they are in the United Kingdom, where electric car buyers may be eligible for a grant of up to £3000.

“Even in the absence of support, at least we could count on no disincentives,” Mr Washington said, adding that the new state-based road user charges would discourage EV uptake even further.

He added governments were sending “mixed messages” on both a state and Federal level, with support for infrastructure development and fleet transitioning, but no incentives for private buyers.

In response, Minister for Energy and Emissions Reduction Angus Taylor told CarAdvice: “Australians should be able to choose which type of car they drive and the Morrison Government will support them in this decision.

“We are backing a range of technologies, not picking one winner. Following on from the Technology Investment Roadmap, the Future Fuels Strategy and $71.9 million Future Fuels Fund will build on existing government support to enable choice through infrastructure upgrades and support for business fleets.”

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