Cheaper electric cars, hybrids after Greens, Pocock strike deal

Car buyers will be given tax breaks that cut the cost of electric vehicles by up to $12,500 after a deal in federal parliament to pass laws experts believe could “turbocharge” the shift away from petrol and diesel engines.

Labor struck the deal with the Greens and key crossbenchers to deliver an election pledge to drop fringe benefits tax on the EVs, but the agreement came at the cost of phasing out similar support for plug-in hybrid vehicles.

There could be a discount of up to $9000 for staffers buying EVs as part of their salary package once the bill passes. Credit: Shutterstock

The changes mean the tax breaks will only be offered on plug-in hybrid vehicles until April 2025 because the Greens and independent senator David Pocock forced the government to insert the “sunset” clause as a condition for securing their support.

The new incentives were strongly opposed by the Coalition after official forecasts showed the tax breaks would sacrifice $4.5 billion in revenue over a decade.

Carving out the plug-in hybrids from the scheme from April 2025 is expected to cut the cost of the scheme by about $930 million over the decade, according to estimates from the Parliamentary Budget Office for the Greens in August.

“These changes are a win for motorists, a win for businesses and a win for climate action,” Treasurer Jim Chalmers said after the deal was struck. The tax change will be backdated to July 1, so buyers will receive the benefit this financial year.

The next policy fight on EVs will be a push by advocates to help cut greenhouse gas emissions by exempting the vehicles from luxury car tax, which adds 33 per cent to the cost of cars above a current threshold of $84,916 for fuel-efficient vehicles.

The government is holding out against that change while it negotiates a free trade agreement with the European Union, which wants the luxury car tax dropped on all vehicles.

Greens leader Adam Bandt said the deal also included a pledge from Labor to stop buying petrol and diesel vehicles for the Commonwealth fleet and accelerate the shift to EVs.

“The government fleet will go electric, and when these cars are sold second-hand, it will help bring the cost down of EVs for everyday people,” Bandt said.

Pocock wanted the government to drop the plug-in hybrid vehicles from the scheme on the grounds they used fossil fuels and did not do enough to cut emissions, but he negotiated the 2025 sunset clause as a compromise.

​Electric Vehicle Council chief executive Behyad Jafari said the outcome would help customers and “turbocharge” the second-hand market for EVs.

“​​This bill will allow thousands more Australians to get behind the wheel of an EV where they can access the benefits of lower fuel bills, cutting pollution, and an enjoyable driving experience,” he said.

To be eligible, the vehicle must cost less than the threshold for the luxury car tax, which is currently $71,849 for most cars but $84,916 for fuel-efficient and zero-emission vehicles.

This would include models such as the Tesla Model 3 (which has a base price of about $64,000), the Tesla Model Y (from about $72,000), the Polestar 2 (from about $64,000), the Nissan Leaf (from about $50,000) and the Volvo XC40 Recharge Pure Electric (from $73,000 before on-road costs).

The changes do not cut the retail price of the vehicles but work by offering a tax benefit by exempting the EVs from fringe benefits tax.

In a “cameo” prepared by Treasury to illustrate the way the policy will work, an employer who includes a Tesla Model 3 in a remuneration package would normally incur a fringe benefits tax of $12,500 on the package. This would be waived under the scheme, making the car a more attractive option.

In another cameo, a worker who earns $120,000 a year and chooses to “salary sacrifice” an EV under a novated lease as part of their remuneration package would gain a tax benefit in proportion to the value of the car. The Treasury estimate is that a worker who chooses an EV costing $64,000 would gain a saving after tax worth around $4300.

The Electric Vehicle Council made a similar estimate of the gains for individual buyers after tax.

“Our indicative modelling suggests that on average, a consumer could expect to save between $3000 and $5000 each year in income tax, thanks to this policy,” said a spokesman for the council.

“This means that in many cases the total cost of owning an EV will be the same as a similar petrol vehicle, and in some cases even cheaper.”

Polestar Australia managing director Samantha Johnson said the initial signs were “very promising” because the changes would simplify the salary packaging.

“What we would like to see is incentives open up to all electric vehicles with the removal of Luxury Car Tax, which is a legacy tax introduced to protect local manufacturing in Australia,” she said.

Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.