High Court dumps Victoria’s “world’s worst” EV road tax

The Australian High Court has ruled that Victoria’s EV tax is unconstitutional and has directed the state government to pay costs in a decision that will have broad ramifications for the industry.

The court ruled that the tax is not “a licence or permit fee” for an activity that comes under a regulatory scheme — as Victoria tried to argue — but a tax on the use of an EV, which can only be imposed by the federal government.

It called Victoria’s arguments “unpersuasive” and “debunked” its interpretation of the word excise.

However, the full bench did not fully agree, with three of the seven judges dissenting.

The case was brought by electric vehicle owner Chris Vanderstock and engineering consultant Kathleen Davies, who argue the states don’t have the constitutional right to impose this tax.

Their lawyer David Hertzberg called the ruling a landmark constitutional decision.

“Today’s judgment means that Victoria’s electric vehicle tax is invalid. It also sets a precedent which will likely prevent other States from implementing similar legislation,” he says.

Davies is thrilled by the judgement, saying given how far behind the rest of the world Australia is when it comes to EV adoption, it’s not the time to be taxing EVs yet.

Furthermore, she hopes the ruling will spur the federal government to take action on a coherent national policy around the transition to EVs and road taxes.

She says the federal fuel excise tax hasn’t been directly used for road upkeep since 1959, and the Victorian tax wasn’t directed to roads either or EV infrastructure — it was considered consolidated revenue in the budget.

“If the commonwealth government wants to fund roads, it needs to have a conversation with all states, motoring bodies and users of roads about how to do it fairly and equitably in a way that is not disincentivizing EVs or decarbonising transport,” she told TheDriven.

Vanderstock believes the tax actively discouraged Victorians from buying EVs as well as punishing existing EV owners who are trying to do the right thing.

“It was an ad hoc, piecemeal policy which undermined our collective efforts to reduce emissions from transport,” he says.

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What did the ruling say?

The key point of the majority judgement was whether the Victorian tax increase the cost of the goods to consumers. If it did, then that was a federal right, says Holding Redlich partner Megan Bishop.

“Consumers acting rationally will tend to factor the cost of consumption into the price they are prepared to pay… so if it changes consumer behaviour and increases the cost to consumers of that goods, then it is an excise,” she told The Driven.

The secondary element of the ruling was that the tax wasn’t based on a definite thing, like petrol, but levied on an EV even if it wasn’t being used.

“The petrol excise is imposed on number of litres of fuel bought. [But Victoria’s road user charge] is a tax imposed periodically on all public roads on the owner of the vehicle and basically meant owners couldn’t use the vehicle for its intended purpose without incurring this tax.”

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Road taxes ok, but there’s a better way

EV advocates admit that road taxes are coming for EVs, but now is too early for Australia.

EV Council CEO Behyad Jafari says future road user taxes need to be national.

“Any scheme should apply to all vehicles and should take into consideration the economic cost of emissions,” he says.

“Allowing states to simply shake down EV owners for a bit of extra tax is a retrograde approach, and I’m very glad to see the High Court slamming the brakes on that today.”

Polling in 2021 by the Australia Institute indicated the original EV road user tax, which was imposed in South Australia, prevented from buying EVs, with seven out of 10 South Australians less likely to buy one because of the tax. South Australia abolished its road tax in February as part of an election promise by the new Labor government.

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What happens now?

Road taxes already paid — and penalties for not paying — are unlikely to be paid back, says Allens-Linklaters partner Adrian Chek.

Chek told TheDriven that taxes have been struck out in the past, and usually what happens is the commonwealth or the state passes legislation preventing the repayment of fees already paid.

Before the court ruling NSW warned that an adverse outcome could impact on a range of other state taxes, but Chek says if it does, the federal government is again likely to step in with its own version to cover any hole in state budgets.

“Looking a the arguments that taxpayers used, if the court has upheld them they would seem to apply to state stamp duties on the transfer of motor vehicles and also on the transfer of goods,” he says.

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States versus federal tax fight

The court case has pitted states against the federal government in a battle over who gets to impose a road user tax once the current fuel excise disappears with petrol and diesel cars.

The battle lines formed with the federal government and the Australian Trucking Association backing Vanderstock and Davies, and all states and territories lining up on Victoria’s side.

The federal government backed the duo on the grounds that section 90 of the constitution says that only the federal government can impose customs, excise and bounties. It says only the federal government can tax the consumption of goods.

The states and territories however claimed that taxing the use of an EV is not a good, but an activity and therefore is something they can do.

The NSW and South Australia governments have been following particularly closely, because they want to bring in their own EV road taxes – 2027 for NSW which has also dumped all EV rebates and other incentives.

Dubbed the “world’s worst EV policy,” Victoria EV road tax started in July 2021 with a toll of 2.5c/km for battery electric vehicles, and 2.0c/km for plug-in hybrids. They have since risen with inflation (2.8c/km for battery EVs).

The Victoria tax has been an irritant in the side of state EV owners. Not only has the rollout been called chaotic and deemed unfair by EV advocates and motoring groups, but at least 240 EVs lost their registration for failing to report their odometer readings.

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This article was first published on The Driven. You can read it here.