For electric vehicles, the days of cheap motoring may be numbered

While fuel-dependent motorists filling up at service stations have been regularly paying in excess of $2 a litre at the bowser (and face the prospect of even higher prices if the Israel-Hamas conflict spreads through the Middle East) they have been able to purr quietly past.

Not only that, but the High Court has struck down the Victorian Government's distance-based charge on EVs, in the process killing off similar plans in New South Wales and Western Australia.

And in July, the luxury car tax threshold for fuel efficient vehicles was raised to $89,332, improving the price competitiveness of EVs.

Of course, EV owners haven't been left completely unscathed. Electricity prices rose 4.2 per cent in the September quarter to be up 14.5 per cent from a year earlier, but they benefited from government rebates which have shielded households from double-figure increases.

Despite this, electric vehicles are becoming an increasingly attractive proposition for the price- and environment-conscious.

EV sales tripled in the first nine months of the year to 65,894 vehicles, a major increase but still accounting for just 10 per cent of the overall market.

Demand is rapidly increasing. A survey of 2000 Australians, undertaken by online researcher Pureprofile, found 77 per cent intend to buy an electric vehicle and 31 per cent planned to do so within two to five years.

But the downhill run EVs have been on shows signs of becoming a little rockier.

Pressure is mounting to find ways to make EVs contribute more to government coffers than just registration and luxury vehicle taxes.

Treasurer Jim Chalmers has noted for some time that as more make the switch to electric vehicles the revenue collected from fuel excise will decline.

Marion Terrill, transport and cities program director at the Grattan Institute says excise revenue is not about to "fall off the cliff", but as it recedes it will leave a sizeable gap in the budget.

Last financial year the excise delivered $21.6 billion to the government's bottom line.

Much to the chagrin of motorists, these funds end up in consolidated revenue and are not specifically directed to roads expenditure. But investment in roads and highways is a big ticket item for governments. According to Deloitte Access Economics, there are currently 385 transport and storage projects worth almost $374 billion that have commenced, are committed to or are planned.

Even if a substantial proportion are eventually dropped, there are still works worth around $244 billion that are considered definite.

The Victorian government's failed attempt to collect revenue from EV owners (the High Court ruled its 2.8 cents a kilometre charge introduced in 2021 was illegal because it was an excise, which only the Commonwealth has the power to impose) has not only blown a hole in its budget but has reignited interest in other forms of road user charges.

Independent Kooyong MP Monique Ryan told the recent Australia Institute Revenue Forum that there needed to be a charge that applied to all road users.

"What you can put in place is a road usage charge that applies to all road users [that] reflects the nature of the vehicle that they're driving, the weight per axle, the emissions that it is producing, where they're driving it, on what sort of roads they're driving up, whether they're driving in cities, where there should be perhaps a congestion component," Ms Ryan said, adding that it should be levied nationally rather than by individual states and territories.

But there has long been concern about distance-based charges of the kind imposed in Victoria because they are seen as inherently regressive.

People in rural, regional and outer urban areas forced to travel long distances to access services or work, and whose public transport options are limited, are essentially penalised because of where they live.

Not that the current fuel excise system is any better.

Professor of Future Urban Mobility at Victoria's Swinburne University of Technology, Hussein Dia, said the way motoring was currently taxed was "a blunt instrument".

People living in regional areas paid the same fuel excise as someone living in inner city areas and the levy did not properly account for the contribution road users made to congestion and emissions.

Independent ACT senator David Pocock, though, said a uniform approach based on vehicle weight was worth considering.

Senator Pocock told the Australia Institute forum that, "we've got to be incentivising more efficient, smaller vehicles, unless you have a really good reason to have to tow or other things".

He suggested initially imposing a small charge and putting the revenue raised toward installing charging stations and other EV-related infrastructure.

"I think most EV drivers would probably be okay with that. If they were paying a couple of cents a kilometre ... but it meant that there were more chargers where they wanted to go," the senator said.

READ MORE:

But Professor Dia cautioned against a one size fits all approach to road user charges.

While backing a distance-based charge, he said it needed to be accompanied by exemptions and subsidies that targeted groups including those on low incomes, living in rural, regional or outer urban areas and those driving older vehicles.

Professor Dia said advances in technology, particularly the use of satellites and GPS to track vehicle movement, made smart charging based on the location, distance and time of travel and the vehicle type, possible.

Ms Terrill said imposing variable rates was the "gold standard for road user charges".

"Gold standard charging reflects pavement-surface damage, the contribution to congestion, and the cost of providing and maintaining roads. Technology is making such fair and precise charging feasible," she said.

Professor Dia said Singapore was about to implement differential road user charges and London had long-standing experience with congestion charges.

But to gain widespread support, he said such charges needed to replace or reduce other taxes and expenses like registration or the fuel excise.

A recent survey of 900 Sydney and Melbourne residents that he helped conduct found that a majority backed a road user charge if it was accompanied by lower registration fees and fuel taxes.

"The next step is trialling this," Professor Dia said.

"If people feel that it is helping the environment and if it is helping the government raise money in a meaningful way and revenue is being used to improve [roads and] public transport, people are supportive."

Ms Terrill said that, in addition to smart charging, drivers in the CBDs of Sydney and Melbourne should also be hit with road congestion fees.

She said a $5 charge that applied during both morning and afternoon traffic peaks would cut the number of cars entering the city each morning by 40 per cent.

And despite the High Court's decision striking down the Victorian government's user charge, Ms Terrill said the ball was very much in the court of the states and territories because the constitution prevented the commonwealth from imposing taxes that discriminate between states or parts of states - as a smart road user charge would do.

She said it made sense for the states and territories to raise more revenue to fund transport infrastructure works, leaving the federal government to focus on nationally significant infrastructure rather than, as currently, spending "far too much on roundabouts, overpasses and car parks".

But the federal government may not give up so easily on ways to replace the stream of revenue coming from fuel excise as it diminishes in coming years.

While this is not a front-of-mind issue for the current government, Dr Chalmers expects it will be looked at in future.

"I think in the next few years, an increasing focus, certainly of our government and most likely governments will follow us, will be this public policy challenge, this revenue challenge, this challenge to the revenue base,'' the Treasurer said, though he admitted "a big part of this is states-related".

The days of very cheap EV motoring may be numbered.