Should electric car owners be taxed for road use?

The NSW state government could charge owners of electric vehicles (EVs) to use its roads, on a per-kilometre basis, to make up for the huge loss in fuel excise it predicts will occur when people start shifting to EV ownership in a big way.

Charging EV owners to use NSW roads would be the first step in a “longer-term transition to a state-based road user charging scheme where all vehicles pay for road use based on the costs they impose,” it said.

The move towards user-pays road charging for EV owners is contained in the New South Wales Review of Financial Relations, a year-long study of federal-state relations commissioned by NSW treasurer Dominic Perrottet.

The report, conducted by former Telstra CEO David Thodey and issued on Wednesday, makes 15 recommendations, including the abolishment of stamp duty on house purchases and increases in the GST, proposals which have garnered plenty of media coverage, but buried in the detail is the suggestion that NSW should be “working with other states to modernise the way we use our roads”.

The report points out that the way Australians travel is changing and that this is leading to a projected shortfall of $11.3 billion in fuel excise.

“Electric vehicles are becoming more popular” and “whilst these changes have delivered the benefits of safer, cleaner, more efficient ways for citizens to move around, they have resulted in a decline in traditional government revenues” said the report.

Under the heading “Electric vehicles: the ‘free’ ride”, the report talks up fuel excise as an “unavoidable, yet almost invisible tax” that “treats everyone the same, with no concessional discounts”.

Everyone, that is, except EV owners, who pay no fuel excise at all as they don’t buy fuel. The report quotes predictions that 58 per cent of all new cars sold by 2046 will be electric powered, figures that have sent a quiver of fear through government coffers.

The reports also points out that fuel excise revenues are “in structural decline as vehicles become more fuel efficient” and that “the uptake of electric and other low-emission vehicles is expected to rise rapidly as their costs relative to petrol and diesel engine vehicles falls”.

“Price parity is expected to occur as early as 2025,” said the report.

This increase will, the report suggests, leave Australian governments unable to pay for road maintenance and construction from the proceeds of fuel excise. This would further mean that “fossil fuel vehicle drivers will effectively subsidise the kilometres driven by electric vehicles”.

The answer, according to the review, is distance-based road charging for people who use EVs.

“A road user charge for electric vehicles should not be seen as an attempt to discourage their uptake by the community,” the report adds. “There are many social advantages that arise from the use of electric vehicles, including lowering air and noise pollution.”

Electric vehicles will be using roads and not paying for them via fuel excise, effectively, and “if properly maintained roads are desired, then drivers of all types of vehicles will have to share the burden of paying for them”.

This does require the reader to believe that all road funding comes directly from fuel excise, rather than general tax revenue, like all other kinds of spending.

While many other countries are actively encouraging people to buy electric vehicles, for their environmental benefits - offering subsidies, cheaper registration, free parking and so on - NSW is one of the first places on the planet to suggest charging EV owners to use its roads, but the report suggests this will have no negative effects.

“In any case, it is unlikely that sharing in that cost would discourage drivers from buying electric vehicles,” the report said, adding that “the technology required to implement a simple distance-based road user charge for electric vehicles already exists”.

Odometer readings would be used, annually or biannually, to calculate a charge based on kilometres driven. The readings would be either automatically submitted by the vehicles themselves, or self-reported by owners, with photographic evidence.

There is also a suggestion in the report that, eventually, everyone will pay by the kilometre for road use: “Aligning road funding reform to the rise of electric vehicles makes sense now.

“A road user fee framework for electric vehicles as a first step, on a smaller scale, will prepare the way for a longer-term transition to a state-based road user charging scheme where all vehicles pay for road use based on the costs they impose.”