A popular tax incentive designed to boost electric car adoption in Australia may be at risk, potentially stalling the rapid growth seen in the sector. The Electric Car Discount, introduced in 2022, aimed to make battery-powered vehicles more accessible by removing the fringe benefits tax, a move initially expected to benefit around 5,000 Australians annually.
Unexpected Success of the Discount
However, the policy has far exceeded initial projections. More than 105,000 individuals have taken advantage of the scheme, tripling the rate at which Australians are adopting electric cars and significantly contributing to the growth of the second-hand electric vehicle market. This overwhelming success has led to Treasury forecasts of the policy costing $1.35 billion per year, prompting a statutory review into its efficiency and necessity.
Experts Warn of Stalled Progress
Automotive industry experts are urging the government to maintain the discount, arguing it is crucial for Australia to meet its 2035 environmental targets. They point to international examples where reductions or removals of similar incentives have led to a slowdown in electric vehicle uptake.
The tax break initially applied to both plug-in hybrid electric vehicles and battery electric models, with qualifying vehicles priced under the luxury car tax threshold of $91,387 when purchased through an employer’s salary packaging. Rohan Martin, chief executive of the National Automotive Leasing and Salary Packaging Association, highlighted the policy’s appeal to those with long commutes, citing the example of a Sydney accountant saving $3,000 to $4,000 annually on fuel costs by switching to an electric car, made possible by the tax discount.
Bridging the Price Gap
“This is an extremely successful policy and government doesn’t always get policies right,” Mr. Martin stated. “It’s delivered strong uptake, it’s reducing emissions, providing cost-of-living relief and it uses an effective private sector delivery channel.”
While the cost of electric cars has decreased, with BYD launching a model under $24,000, the price gap with traditional fuel vehicles remains significant. Aman Gaur, policy head at the Electric Vehicle Council, explained that the top 10 best-selling electric cars still carry an average price premium of 25 percent. “For the top 10 best-selling EVs last year … there’s still an average 25 per cent price premium that needs to be addressed in order to bring more Australians into EVs,” he told AAP. “You’re going to be saving heaps of money per year by driving an EV and doing a great thing for your country in terms of air pollution and noise pollution (but) those benefits are difficult to understand when somebody is looking at the sticker price.”
Second-Hand Market Boost
The discount’s impact extends to the second-hand market, which is crucial for sustained adoption. “We are now finally starting to see an emerging EV market in second-hand sales,” Mr. Gaur noted. “That really is the biggest reason we need to see the Electric Car Discount continue.” Used electric car sales in January saw a 20 percent jump, according to data from the Australian Automotive Dealers Association and AutoGrab, outperforming other vehicle types.
International Precedents and Industry Concerns
Australia has already seen other state-level rebates and discounts for electric cars withdrawn in Victoria, NSW, and Queensland. Professor Hussein Dia from Swinburne University warned that removing this final federal incentive could significantly slow sales, citing examples from Germany, the Netherlands, New Zealand, and the US where reduced or removed incentives led to sharp declines in EV purchases.
“The international experience shows sustained EV uptake is closely linked to the availability of consumer incentives,” Professor Dia stated. In New Zealand, electric car sales reportedly fell from 27 percent to 11 percent after the government discontinued its Clean Car Discount in December 2023.
The Federal Chamber of Automotive Industries, representing 68 car brands, shares these concerns. CEO Tony Weber emphasized that even with a growing range of over 100 EV and 50 plug-in hybrid models available, consumer demand, supported by incentives, is essential for achieving policy objectives. “We now have more than 100 EVs, 50 plug-in hybrids,” he said. “Without consumer demand, we can bring as many cars into the country and as many models as you like but it’s not going to achieve the policy objective.”
Submissions for the review of the Electric Car Discount closed on February 6, with a report expected in 2027.