As Australia wakes to the global wave of electrification in transport, there’s a lot to look forward to. Whether paying less for transport, cleaning the air we breathe, reducing our dependence on imported oil or creating innovative new businesses and jobs in the future of mobility.
But occasionally, I see the debate tied up in the doom and gloom of the challenges we’ll face to get there.
One of these concerns is how we will pay for our roads, since EVs don’t pay fuel excise.
As the CEO of the Electric Vehicle Council, I have a pretty obvious bias when it comes to EVs, but sometimes the numbers speak for themselves. The startled concern repeated for media consumption is the utter unfairness that while the average driver in a Corolla pays up, someone who can afford a Tesla is getting away scot-free.
Now comparing a Tesla and a Corolla is a strange comparison when crunching the numbers sure, but it’s purposely used to make a point about fairness. So, let’s take them up on the offer.
Fuel excise does not ‘pay for our roads’
The first thing to understand is that fuel excise does not pay for our roads. Repeat after me: Fuel excise does not pay for our roads. Just like every other tax, it goes into what’s called ‘general revenue’, the big pile of money made up of our taxes. Our roads are then paid for by that big pile of money that is made up from all taxes.
‘The government doesn’t, and can’t, segregate revenue from road use to spend on roads. Federal spending on infrastructure is funded from general government revenue, the pool of funds received from the full range of federal taxes.’ – Grattan Institute
How road charges work in Australia
So now that we know all taxes pay for our roads, let’s compare the charges that relate to using those roads. These charges are made up of two different groups.
There are point-of-sale, like GST, Stamp Duty and in our case Luxury Car Tax. Then there are ongoing ones like registration, CTP and of course Fuel Excise. Some of these by and large cancel each other out, so we’ll try to keep it simple and focus on the big ones.
Tesla Model S v Toyota Corolla (petrol), who pays more?
Editor's note: In breaking down the numbers of this story, we asked Mr Jafari to explore past suggestions (here, and here) that a Tesla Model S driver would be getting away with a free ride on Australian roads, while drivers of more conventional petrol-powered cars would be paying significantly more.
In 2018, as Minister for Federal Urban Infrastructure, Paul Fletcher said: “If you’re driving a 10-year-old Commodore, you’re paying through the fuel excise system the equivalent of 4.5c a kilometre, if you’re driving a Prius it’s about 1.5c a kilometre, if you’re driving a completely electric Tesla you’re not paying anything. So one of the issues is fairness".
Now we get to the fun stuff, the numbers. Remembering that all these taxes go to the same place, that pay for our roads the same way.
Whilst there is a debate to be had about the merit (or lack thereof) of some of these taxes, it’s not up for consideration here. We are talking purely about the numbers.
The way that point-of-sale taxes work, they apply proportionally, meaning the amount goes up the more expensive the vehicle you buy. A base Tesla Model S pays a whopping tax bill of close to $33,000 between GST, Stamp Duty and Luxury Car Tax.
Meanwhile, buying a Toyota Corolla set you back closer to $3,200. More than ten times less.
Once it’s on the road, we get to our core argument: that the Corolla has to pay for fuel excise, while the Tesla doesn’t. Does that mean they’re paying more?
Fuel excise sits at $0.423 per Litre. The 2L Corolla has a Combined efficiency rating of 6L per 100km. The Australian Bureau of Statistics tells us Australians drive for an average 13,400km per year.
That means the Corolla is paying $340 every year in fuel excise that the Tesla doesn’t have to pay. But remember, the Tesla driver has already paid an additional $30k in taxes upfront. To bridge that gap, the Corolla would have to keep driving for 88 years before it “catches up”.
When all’s said and done, the Tesla owner is paying much more than their fair share.
EVs pay more, while providing more value
Now the obvious rebuttal here is that those are two very different cars, with a huge gap in prices. Comparing like-for-like is clearly much more sensible, but it lacks the sting of that fun line you hear in the media.
What does happen when we consider more comparable vehicles?
Well even in a like-for-like comparison, the EV, as a new technology, carries a price premium Mostly that’s made up from the fact that the inclusion of batteries make the cars more costly to manufacture, but it’s also the component where costs are falling dramatically, and why so many are certain and excited about EVs’ future role in transport.
McKinsey estimates an EV with a 50-kWh battery pack is on average $18,000 more expensive to produce. That premium goes up with a larger battery.
That means on average an EV driver pays more taxes because the car is electric.
Once you factor in the time value of money, the fact that you’d rather have a dollar now than in ten years from now, in even a comparable scenario the EV driver gets burdened with more tax than others will need to pay.
What’s the big deal anyway?
A quick moment to remember why we pay taxes. Sure, because we have to, but the idea is that governments collect our money to provide us with benefits. This is important to remember because the conversation keeps getting clogged up in how much money the government makes, rather than how good a job it’s doing with it.
When you start adding it up, you realise we pay for the cost of driving on our roads in several ways. Doctors tell us around 1,715 people die each year from vehicle exhaust fumes and many more get sick. That’s more than the number of people who die from crashes. We spend $16bn importing fuel to the country, to say nothing of the cost of sending warships to protect supply lines.
As the CEO of the Electric Vehicle Council, it’s important to me that we develop a booming e-mobility industry, creating careers Australians will work in for generations, like many other countries are doing.
Nobody is debating the rest of the world will go electric – they will, but at the same time, not enough people are asking what role Australia should play in it. Reports show that with the right effort and planning, Australia could grow an industry that supports EVs, and that industry would be worth $300bn to our economy.
These are the reasons why people like me argue governments should care about your drivetrain and show our leaders why governments around the world already agree and have implemented measures to follow through.