Why soaring popularity of electric vehicles could see all drivers paying a road user charge

All Australian motorists could soon end up paying a road user charge regardless of what they drive as the rapid surge in electric vehicle sales during a prolonged Iran war causes a collapse in fuel excise revenue.

The Parliamentary Budget Office is expecting petrol and diesel tax revenue to fall during the coming decade as electric and hybrid cars made up a quarter of all cars on the road.

But the war in Iran was already supercharging demand for electric vehicles, with EVs last month making up one in four new vehicle sales even before the Memorandum of Understanding between the US and Iran collapsed, jeopardising the flow of crude oil out of the Strait of Hormuz.

Professor Robert Breunig, the director of the Australian National University’s Tax and Transfer Policy Institute, said a Federal Government road user charge, covering congestion and pollution, could be introduced in the 2020s for all kinds of vehicles to compensate for the fall in petrol and diesel excise revenue.

“More people take up EVs, the excise for petrol is just going to drop and drop and they’re going to have to do something about that,” he told The Nightly.

“It’s a problem that needs addressing and the further we go forward in time, the more urgent that’s going to become.

“The sooner we can do this, the better. The Iran war is going to push more EV purchases and that’s going to push the Government to do something.”

The States and Territories would lack the constitutional authority to levy a road user charge, which Professor Breunig said meant a national charge could potentially be levied for every kilometre of travel that would be introduced in parallel with existing the Commonwealth fuel excise.

“There is a constitutional issue, and this is something that will probably go in front of the courts,” he said.

“We don’t want to get rid of excise but in terms of long-range Budget sustainability, that’s not where the revenue is going to come from.”

Battery electric vehicles had a 23.3 per cent market share in June, the month Iran and the US signed a short-lived deal.

This was more than triple the 7.6 per cent share a year earlier, which was eight months before the US strikes on Iran began.

Excise revenue now makes up 1.3 per cent of gross domestic product but this was projected to fall to 1.1 per cent in 2036-37, mainly from a drop in fuel and tobacco tax collection.

Fuel excise of $26 billion was expected to comprise 71 per cent of all excise revenue in 2026-27, but the decline in tax collections would see its share of GDP fall from 0.91 per cent in 2026-27 to 0.78 per cent in 2036-37.

The CSIRO projects that more than one-quarter of cars in Australia are likely to be electric by within a decade from now.

But with EVs still only making up 2 per cent of all cars on Australian roads, fast-tracking a road user charge would only cause more financial pain for motorists, Ebury economist Anthony Malouf said.

“A national road user charge is likely inevitable given the long-run decline in fuel excise revenue as EVs slowly become the norm, but there is no strong case for fast-tracking it because of Strait of Hormuz volatility,” he told The Nightly.

“EVs still make up only around 2 per cent of vehicles on Australian roads, so near-term revenue losses from geopolitically driven fuel switching would be marginal.

“Introducing a new charge on driving while households are already absorbing higher fuel prices would also be poor political timing for the government, which is already under pressure from other tax policy changes.”

A fully-electric car was Australia’s bestseller in June with 8072 Telsa Model Y units sold, marking the highest sales for a single model since November 2002 when 8482 Holden Commodores were sold, data from the Electric Vehicle Council and the Federal Chamber of Automotive Industries showed.

BYD, the Chinese-owned maker of the world’s most electric cars, last month came within 243 sales of Japanese giant Toyota, Australia’s uninterrupted market leader since 2003.

The BYD Sealion 7, an EV, was Australia’s fourth most popular car with its 4730 sales putting it behind the diesel Ford Ranger (5999 sales) and Toyota Hilux (5175 sales).

The hybrid BYD Shark 6 was in sixth place with 3398 sales while the fully-electric BYD Atto 2 was ninth with 2482 ordered.