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Labor extends EV tax break to encourage cheaper vehicles amid soaring fuel prices
TL;DR
Labor has extended the electric vehicle tax break for another year to support Australians amid rising fuel prices. However, the government plans to implement changes over the next three years to make the scheme more financially sustainable.
Key points
- Labor extends electric vehicle tax break for another year
- Extension lasts until March 2027
- Changes planned for a more sustainable tax incentive
- Discount reduces leasing costs for eligible EVs
- Soaring fuel prices linked to the Iran war
Labor has opted to retain its electric vehicle discount in full for another year, as Australians rush to buy EVs amid soaring fuel costs linked to the Iran war.
But the budget next Tuesday will include a number of “sensible changes” that wind back the scale of support over the next three years, as the government acknowledges the need to deliver a “more financially sustainable” tax incentive for EVs amid ballooning costs of the scheme.
The electric car discount was introduced at the start of 2023 and has cut thousands of dollars from the cost of leasing an eligible EV through an exemption to fringe benefits tax (FBT).
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The treasurer, Jim Chalmers, and energy minister, Chris Bowen, announced in a joint statement on Monday evening that the policy would be extended until the end of March 2027.
The full FBT discount will then only apply to vehicles costing under $75,000 until the start of April 2029.
“The new rules will encourage manufacturers to offer more affordable and cheaper to run EVs in the Australian market,” Chalmers and Bowen said.
“The current new vehicle efficiency standards have seen a dramatic increase in the availability of affordable EV models, so now is the right time to focus the FBT exemption on these cars.”
During this second phase, electric vehicles costing more than $75,000 but priced below the luxury car tax threshold – currently set at $91,387 for fuel-efficient vehicles – would receive a 25% FBT discount.
Chinese carmakers such as BYD now sell EVs for as little as $26,000.
In the third and final phase, from 1 April 2029, the electric vehicle incentive will be limited to a 25% fringe benefits tax discount for all EVs below the luxury car tax threshold.
“We will continue to provide support for families who choose to switch to EVs as we transition to a permanent 25% discount on FBT for these cars,” the ministers said in their statement.
The unexpected popularity of the scheme has resulted in major cost blow-outs that, before the Iran war, had seemed to dampen its appeal in Canberra and triggered concerns among advocates that the government was going to ditch the discount.
When Labor first pitched the policy before the 2022 election, it was projected to cost $605m in the seven years to 2029.
Q&A
What is the duration of the extended electric vehicle tax break in Australia?
The electric vehicle tax break has been extended until the end of March 2027.
Why is the Australian government extending the EV tax break?
The extension aims to encourage the purchase of electric vehicles amid soaring fuel costs linked to the Iran war.
What changes are being made to the EV tax incentive in Australia?
The government plans to implement 'sensible changes' to wind back the scale of support over the next three years for a more financially sustainable scheme.
How does the electric vehicle discount impact leasing costs in Australia?
The discount has significantly reduced the cost of leasing eligible electric vehicles by providing an exemption to fringe benefits tax.
