The tax perk supercharging EV sales

A discount intended to help sell electric cars has proved far more popular than the government expected.

Electric vehicle sales in Australia are being propped up by a tax discount Treasury officials have forecast will cost four times more than previously expected.

The Albanese Government’s discount waiving fringe benefit tax (FBT) requirements for electric cars leased through salary sacrificing has been credited with turbocharging EV demand, but a document produced independently by Treasury suggests this will mean significantly less revenue for the budget.

While electric cars are more expensive to buy than petrol equivalents, the FBT exemption has made them cheaper to lease.

The FBT concession has prompted brands such as Audi to introduce new EVs in Australia.

Treasury’s 2022-23 Tax Expenditures and Insights Statement released in January last year forecast the tax exemption would equate to about $260 million in sacrificed revenue over four years.

But figures released in January 2024 upgraded the total forecast over the same period to about $1.15 billion based on strong early uptake.

It is understood Treasury significantly changed its methodology between modelling the two forecasts, which are produced separately from the government’s own estimates used for the federal budget.
The EV tax incentive forecasts are from a document designed to improve transparency about individual tax policies by showing their impact on revenue in isolation, assuming no other policies exist. It is not a Budget costing.

But Coalition treasury spokesman Angus Taylor said Labor’s policy had been “poorly designed” from the start.

Electric car sales have been boosted by an EV discount. Photo by Thomas Wielecki

“It’s typical of the Treasurer’s ability that a bad policy he dressed up as tax reform has blown out in cost while delivering a benefit to only some Australians,” he said.

“Once again it is hardworking Australians who will foot the bill for Labor’s economic mismanagement.”

With the FBT exemption the weekly cost of leasing a $67,000 electric car is about the same as for a $40,000 petrol car.

The success of the EV tax discount could flood the second-hand market with electric cars when the first tranche of three-year leases promoted by the program ends in July 2025.

As one of the top three brands for EV sales in Australia, BMW credits the FBT exemption for driving demand for electric cars priced under the scheme’s cut-off of $91,387.

2021 BMW iX3 electric SUV.

BMW spokesman Nick Raman said the tax perk “has played a big role” in BMW’s success, as the six electric BMWs eligible for the discount represent 24 per cent of its sales total.

“The financial advantages of doing a novated lease have been really positive,” he said.

“We knew that there was a big opportunity around that … it’s brilliant.”

Audi is preparing to go after BMW’s lead with its first relatively affordable EV in the next few weeks, by launching the new Audi Q4 e-tron, a car that will come with a year’s free charging at public sites..

Audi Australia director Jeff Mannering said the FBT concession had propped up the electric car market.

Audi Australia director Jeff Mannering. Photo: Supplied

“It’s actually changed the way people buy a car,” he said.

Several months after buying his Tesla Model 3 Performance, Jarrah Watson said having an EV had been “absolute game changer.”

“It’s zero maintenance, you basically never have to deal with a mechanic, and you’ve got the renewable energy aspect as well,” he said.

The 44-year-old said he had been unable to qualify for the FBT exemption through his employer.

Tesla sales have been supercharged by the EV discount. Photo: Mark Bean.

“If I were in that situation, getting the discount would be a no-brainer,” he said.

Mr Watson said if the government was prepared to “let go” of a lot of money to incentivise EV sales, it should be through a “clearer, simpler option”.

Originally published as The tax perk supercharging EV sales