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Proposed FBT exemption would benefit a select few but other initiatives would have greater impact, says IPA.
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Electrical vehicle incentives ‘add fuel to fire’
24 August 2022
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12 minute read
Removing FBT from electric vehicles will only benefit a select few buyers and do little to increase sales but simply “add fuel to the fire”, the IPA said.
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Other issues, such as EV supply and fuel standards, need to be addressed first and the cost of the measure – $205 million over four years – “is not warranted” given the “small number of vehicles” that will take advantage.
In its Senate submission on the policy, the IPA said that although the FBT initiative was an election promise, “from a sustainability perspective it will have less impact than many of the alternatives that the government has under its control” and would be more effective once other “constraints were less influential”.
Instead, the government should consider tightening FBT eligibility for utes and using that money for broader EV incentives, making public transport FBT exempt, as well as stricter vehicle import rules and setting a fuel efficiency standard.
The absence of a fuel efficiency standard “is discouraging carmakers from bringing EVs to Australia,” it said.
“The limited supply of EV’s brought to Australia are sold out very quickly in minutes, so one of the most important obstacles in Australia is, how to unlock more supply,” it said.
“Tesla, which only produces EVs, is one of few manufacturers not affected by fuel efficiency standards, and the only manufacturer that’s bringing (EV) models into Australia at scale.”
IPA general manager of technical policy Tony Greco, who wrote the submission, said: “Some of these measures cost little to implement or generate savings but more importantly address the supply issues currently facing the Australian marketplace.”
By contrast the government’s proposal, which removes FBT from EVs under the fuel-efficient luxury car tax threshold of $84,916, would result in substantial savings for some buyers but minimal impact on the new car market.
The scheme, which starts from 1 July 2022 and runs to 2025–26, is forecast to cost $20 million in the first year rising to $90 million in the final year for a total of $205 million.
“The FBT savings on a $60,000 EV using the statutory formula is more than $11,700 a year, adding to a wide range of state-based incentives,” Mr Greco said.
“If you extrapolated the above amounts into number of vehicles based on a purchase price of, say $60,000, the corresponding back-of-the-envelope result would be: 1,705 vehicles in 2022–23, 3,409 in 2023–24, 4,688 in 2024–25 and 7,671 in 2025–26.
“In the context of the number of vehicles sold in Australia for 2021 calendar year (1,050,000 units), it represents a very small percentage of new car sales and therefore will have a negligible impact on reducing Australia’s carbon emission from the transport sector.”
EV sales in 2021 totalled 5,149 while buyers to the end of July added up to almost 10,300, or 1.7 per cent of the new vehicle market.
EV options in Australia remain relatively thin, with the most affordable coming from Chinese maker BYD at prices starting from $40,000. Also below the illustrative $60,000 starting price is one model from fellow Chinese maker MG, two from Hyundai, one each from Nissan and Mini, plus a small Renault van.
However, demand outstrips supply and waiting lists stretch for months.
Moreover, the limitations of the scheme made it available to only a few buyers, IPA said.
“The FBT exemption in relation to EVs is only good for employees who have the ability to salary sacrifice, so it’s unfortunately not available to everyone,” the IPA submission said.
“Private buyers and sole traders of EVs cannot access these significant savings as it only applies to employees. This significantly limits the impact of the proposed changes as the majority of vehicles purchased would not be eligible.
“The government’s assertion that this initiative makes the take-up of EVs more affordable is misleading and should be qualified accordingly.”
The submission also pointed out that early adopters of EVs, who purchased before the scheme starts on 1 July 2022, cannot benefit and the three-year horizon for the scheme “adds a level of uncertainty”.
“There is no commitment beyond the first three years to ensure benefits are maintained for participants that have entered into salary sacrifice agreements in good faith,” the IPA submission said.
Further uncertainties surround the value of an EV at the end of its lease term, with the potential for older models to be eclipsed by technological advances and better batteries.
IPA said that notwithstanding all the issues it is “generally supportive of measures that increase the attractiveness of EVs”.
“The main point we wish to make is that there are other measures which would have a far greater short-term benefit to the environment,” the IPA submission said.
It makes four suggestions:
- Tighten FBT exemption for dual-cab utes.
“This FBT concession is overly generous when not applied for its intended policy purpose. There is strong anecdotal evidence that it is being widely abused … [with] low level of enforcement of the strict criteria,” the IPA submission said.
- Impose fuel standards.
“Australia is known to have some of the dirtiest fuel in the world, yet there are still no fuel efficiency standards that stack up with the rest of the world,” the IPA submission said.
It says the International Energy Agency’s Global EV Outlook 2022 “acknowledges the fundamental role of CO2 standards in promoting EV adoption”.
3 Tighten vehicle import standards.
“Delaying the implementation of stricter standards for vehicle imports will continue to leave Australia behind as a dumping ground for inefficient vehicles,” the IPA submission said.
“This is also resulting in a shortage of EV supply in Australia, with consumers often waiting several months or having to make a purchase as soon as stock is replenished.
“Otherwise … manufacturers will remain reluctant to increase the supply of EVs, instead offloading their higher emissions vehicles that are banned in other jurisdictions.”
- Make public transport FBT exempt.
“There has long been calls for this exemption. Since cars are projected to remain responsible for about half of transport greenhouse gas emissions, economic mechanisms must be used to deter car use while investing in more environmentally sustainable transport,” the IPA submission said.
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