The 2026 BYD Atto 1 is Australia’s cheapest electric car, starting from $23,990. Photo: James Coleman.
Electric vehicle owners could soon be paying for every kilometre they travel, as the Federal Government looks to capitalise on rising demand for EVs – and stem the tide of falling fuel excise revenue.
Right now, drivers of petrol and diesel cars pay 51.6 cents per litre in fuel excise – a revenue stream expected to be worth $24.9 billion this financial year.
But not a cent comes from EV drivers.
Treasurer Jim Chalmers said this would reach the point it’s no longer sustainable within “the next decade or two”.
“As more and more people get off petrol cars and into EVs, we’ve got to make sure that the tax arrangements support investment in roads,” he said.
“The status quo won’t work in 10 or 20 years.”
Budget models from makers like BYD have helped drive demand for EVs. Photo: Jamberoo Action Park.
Treasury is investigating a road-user charge as part of an “ambitious budget” that is also expected to include major changes to capital gains tax and negative gearing.
New car sales figures for March aren’t out yet, so it’s not yet clear what effect the war with Iran and skyrocketing fuel prices have had on demand for electric vehicles, but according to the Federal Chamber of Automotive Industries (FCAI), there’s a strong existing trend away from internal combustion engines.
EVs accounted for a record 11.8 per cent of new vehicle sales in February – a 95.9 per cent year-on-year increase – while sales of petrol cars declined 17.7 per cent and diesel fell 1.6 per cent.
After a roundtable last year, Dr Chalmers said there was “a lot of reform appetite” regarding a road-user charge.
“Right around the table, people had a view that this is an idea whose time has come, and so we will do that work,” he said.
The Australian reported that Treasury staff have now been assigned to work out how a national road-user charge will operate, including how it will be charged and who will collect the revenue.
One option is tracking distance via annual odometer readings – something already done as part of registration renewal in NSW.
Another is GPS tracking, similar to how rideshare trips like Uber are logged, but that could raise privacy concerns.
The reform would likely require the state and territory governments to enforce the law through their existing registration systems, even if the revenue collected goes to the federal coffers.
Under a proposal previously floated in NSW, EV drivers could be charged about 2.9 cents per kilometre – adding roughly $300 to $400 a year to registration for the average motorist.
A NSW road-user charge proposal would have EV owners paying between $300 and $400 extra per year in registration fees. Photo: Peter Fraser.
The tax debate is unfolding alongside a separate shake-up that could actually make some EVs cheaper.
The newly signed free trade agreement with the European Union will scrap the 5 per cent tariff on imported vehicles, bringing European cars in line with those from countries like Japan and Korea.
At the same time, the government is lifting the Luxury Car Tax (LCT) threshold for zero-emission vehicles from $91,387 to $120,000.
This reduces the number of EVs hit by the tax from 97 to 61, ranging from $150,000 BMWs and Audis to the $933,000 Rolls-Royce Spectre.
Industry groups say it’s a step forward, but not a fix.
“The removal of the tariff is a positive outcome for Australian consumers and brings European vehicles in line with those imported from other major markets,” FCAI chief executive Tony Weber said.
But both dealers and industry bodies argue the LCT itself is fundamentally flawed and outdated.
“While the introduction of a higher LCT threshold for electric vehicles provides some benefit, it is a narrow change that will only affect less than 1 per cent of vehicles sold and does not address the fundamental flaws of the tax,” Australian Automotive Dealer Association (AADA) CEO James Voortman said.
The BMW iX is one EV that will no longer be subject to LCT or the 5 per cent European trade tariff. Photo: BMW Australia.
The LCT – a 33 per cent levy above a set threshold – was originally designed to protect Australia’s car manufacturing industry.
“Today, it acts as a distortionary tax that no longer reflects the realities of the modern automotive market,” Mr Voortman added.
“This was a clear opportunity for the government to implement meaningful reform by either abolishing the tax entirely or ensuring it only applies to genuinely luxury vehicles.
“Instead, we’ve seen a partial measure that leaves many everyday vehicles, including those commonly used by small businesses and regular Australians, still captured by the tax.”
The 2026 Budget will be delivered on 12 May.
Original Article published by James Coleman on Region Canberra.
