Crucial court battle to set road tax for electric cars

Kath Davies is one of two plaintiffs in a case against Victoria's EV charge.

Kath Davies is one of two plaintiffs in a case against Victoria's EV charge. Photo: AAP

Australia’s highest court will decide whether states have the right to tax citizens for the type of cars they drive and how far they drive them.

The High Court stoush this week in Canberra will attract lawyers, state, territory and federal attorneys-general, and two passionate electric car drivers.

If the states – led by Victoria – win the battle, drivers can expect a variety of charges for electric and hybrid cars in coming years.

But if Kath Davies and Chris Vanderstock make their case, the federal government will decide how drivers of next-generation vehicles pay to fund roads.

It is a battle that’s been playing out since 2001, when Victoria launched a tax on electric, hydrogen and plug-in hybrid electric vehicles, and Ms Davies says the case, which involves debate about the Australian Constitution, has elements of iconic film The Castle.

“I just want someone to say, ‘it’s the vibe’,” she laughed.

An early adopter, the Melbourne engineering consultant said she bought her first electric car in 2012 and a plug-in hybrid in 2017 with climate impact a guiding factor.

When Victoria introduced its Zero and Low Emissions road user charge in July 2021, taxing use of the vehicles, Ms Davies said she saw red.

“At the time, I have to admit, I was angry. It was about 15 years of frustration, of not seeing enough climate action, and I’d never considered climate litigation as a tool for change,” she said.

“The electric vehicle tax in Victoria, in my opinion, is a discriminatory tax against electric vehicle drivers and it’s putting the brakes on EV adoption. It’s making it more difficult for people to go to EVs.”

Under the Victorian tax, electric and hydrogen car drivers must submit a photo of their car’s odometer each year and pay 2.6 cents for every kilometre, whether inside or outside the state.

Plug-in hybrid electric vehicle drivers are charged 2.1 cents per kilometre in recognition they also pay the national fuel excise on petrol purchases.

If one of these drivers fails to report their odometer reading, the Victorian government will automatically bill them for 13,500km a year, or up to $351. Their registration could also be suspended and then cancelled.

Victorian Treasurer Tim Pallas said the tax was designed to ensure “all motorists pay their fair share to use our roads” and set expectations early.

“Introducing a road usage charge now, before take-up increases substantially, ensures that everybody pays a fair and sustainable charge for the use and the wear and tear on our road network and that means safer roads,” he said.

But Ms Davies said she was concerned about the impact the charge would have on EV adoption in Australia.

“It feels like a punishment,” she said. “The reason I’m driving an electric vehicle is to try to reduce fossil fuel use. To make me feel like I’m a criminal for trying to do the right thing is wrong.”

Ms Davies, along with fellow EV driver Mr Vanderstock, will be represented in the High Court by Equity Generation Lawyers in a case partly funded by other EV proponents.

More than 700 people have donated $51,000 to support the case through a campaign, in a move senior associate David Hertzberg said showed the strength of opposition to Victoria’s tax.

But Mr Hertzberg said the case was about much more than evading a fee – it had become “a constitutional challenge”.

“This case will have ramifications for the division of power between the federal government and the states,” he said.

“What’s at stake here is the ability of state governments to implement taxes like Victoria’s EV tax.”

As lead lawyer, Mr Hertzberg said he would argue the Victoria’s Zero and Low Emissions road user charge was a tax on electric vehicles and “therefore a tax on goods,” as well as an excise that should be set by the federal government rather than states and territories.

“What we don’t want to see is piecemeal, ad hoc, state-based taxes which operate inconsistently and discourage people from making the switch to electric vehicles,” he said.

“One of the implications of this case, if we are successful, is that it might pave the way for coherent, consistent and fair national policy to encourage the transition.”

The constitutional argument, however, has won the full attention of Australia’s state and territory governments. Attorneys-general from each provided written submissions to back up Victoria’s defence, while federal Attorney-General Mark Dreyfus intervened on behalf of the plaintiffs.

Mr Hertzberg said each representative would make submissions to the court over the three-day case.

Australian Electric Vehicle Association national president Chris Jones said the involvement of so many lawmakers underlined the case’s importance.

But he said it was also important for spectators to realise the case was not about letting electric vehicle drivers avoid paying tax but to create a fairer system.

“Only the most cantankerous libertarian might take the position that ‘I bought an EV so I deserve to drive for free’,” he said.

“We accept that there needs to be a charge to use publicly funded road infrastructure but I think we can all agree the way the Victorian government has gone about this sets it up to be incredibly unfair.”

Mr Jones said plug-in hybrid electric car drivers in Victoria were “getting a raw deal” by paying the tax in addition to the fuel excise, while hybrid car drivers were paying less than all other drivers.

A fairer system, he said, would be a national road user charge applied to all vehicles based on their weight and how many kilometres they covered each year.

The tax would be created by the federal government, administered by the states, and could be introduced in 2027 or when electric vehicles made up 30 per cent of new car sales.

It is a proposal that has support from the Federal Chamber of Automotive Industries, with chief executive Tony Weber saying a universal road user charge could simplify the cost of driving.

“Such a scheme would result in a more equitable taxation system for consumers as numbers of zero and low-emission vehicles on Australian roads continue to grow,” he said.

More controversially, however, Mr Jones said the 44.2 cent fuel excise should remain in place as a disincentive to drive a petrol-powered vehicle.

“We would argue you could leave the fuel excise in place as a pollution tax, effectively,” he said.

“If they were to introduce that now, there would be a fair bit of backlash from petrol and diesel vehicle drivers but I think we need to start working on it now. It’s going to take a while for everyone to agree to it, get the mechanisms in place and do budget modelling.”

The High Court case will be heard from Tuesday to Thursday.

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