$13,296 blow for EV drivers as major incentive could soon be scrapped: 'Would not buy'

Yahoo

20 hours ago

Generous tax subsidies for electric vehicles (EVs) could soon be phased out as the federal government tries to rein in spending. EV drivers have been able to save thousands of dollars thanks to Fringe Benefits Tax (FBT) exemptions and other incentives.
Sydney resident Tom Gao told Yahoo Finance these tax breaks were the main reason he jumped on the EV bandwagon when he bought his first Tesla. Productivity Commissioner chairwoman Danielle Wood has indicated it could be on the chopping block to make way for cheaper initiatives.
'We have a whole range of policies at both federal and state level to try and reduce carbon emissions,' she said on the ABC's 7.30 programme.
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'Each of those has sort of an implicit cost per tonne of abatement. Some of those we've said in the past are pretty high, things like fringe benefit tax subsidies for EVs.'
The tax break was introduced by Anthony Albanese in 2022 and was designed to boost the number of EVs on Aussie roads. That has definitely been achieved.
According to the Australian Automobile Association, there were 6,752 battery-powered electric vehicles (BEVs) sold in the first quarter of 2022.
Fast-forward to the first quarter of 2024, there were 25,552 sold.
BEV sales have dropped off since then as plug-in hybrids became more popular due to being the best of both worlds between a battery and internal combustion engine (ICE).You can deduct the cost of an electric vehicle if:
The EV was worth less than $91,387
The car was bought with a novated lease
A novated lease allows an employee to buy a new or used car and have their employer cover the cost of lease repayments to an agreed financial supplier.
The employer makes the repayments to the leasing company out of the employee's pre-tax salary in a salary sacrifice arrangement, which reduces the employee's taxable income.
For example, if a worker secured a $68,000 EV through a novated lease through their company, they could save around $13,296 thanks to the exemption.
As many as 100,000 people have taken up the tax break so far, according to the National Automotive Leasing and Salary Packaging Association.
"I would not be buying an EV if FBT exemption is removed," Goa told Yahoo Finance, who feared there would be a "significant drop in EV purchases" if it was scrapped.
"If you look at uptake of EVs in countries like Norway, it's completely driven by government incentives," the Sydney driver said. "That's the case across the world."
The government ended the FBT exemption for plug-in hybrids at the end of March this year.
The Productivity Commission is currently reviewing the tax break ahead of a government summit in August.
It's set to release a report on its findings before that meeting in a few months.
Treasury had forecast the FBT exemption policy would only cost taxpayers $55 million in the 2024-25 financial year.
But figures from the Institute of Public Accountants found it cost closer to $560 million per year.
The Commission estimated in 2023 that the policy cost between $987 to $20,084 per tonne of carbon abatement. This means the government is spending that much money for every tonne of carbon emissions it has helped prevent.
That reportedly makes it the most expensive climate policy on the government's balance sheet by a long shot.
For comparison, the next most expensive policy at a federal level is the discounted excise for E10 petrol, which is $128 to 274 per tonne of carbon abatement, according to the Australian Financial Review.
While Gao has enjoyed the benefits of the policy, even he admitted it was an "outrageously" generous handout and bordered on being "extremely fair" for ICE drivers.
While the FBT exemption for EV drivers might get scrapped, the Commission could suggest allocating the money towards broader emissions reductions strategies.
This could include expanding the carbon emissions cap to additional sectors like road transport and electricity.
During the 2025 election campaign, Peter Dutton said the Coalition would axe the exemption if his party won.
The promise sparked major concerns in the EV community, with Electric Vehicle Council CEO Julie Delvecchio saying she was "extremely disappointed and confused".
'The electric car discount has been helping thousands of workers finally afford to buy an electric vehicle. When Australians make the switch to an EV, they stand to save up to $3,000 per year on fuel and maintenance costs, but the biggest roadblock is the upfront cost," she said.
"The FBT exemption has been helping to lower that barrier.
"The Australians who're set to lose out most are those in outer suburbs, who have embraced the electric car discount in droves.
"People living in the outer suburbs and regional communities — who typically drive longer distances — are finally able to access the savings that EVs offer, thanks to this discount."
She said the exemption had been "highly effective" at getting more EVs on the road and getting rid of it could "stall progress toward cleaner, cheaper-to-run transport".