A states vs Commonwealth court battle will decide the future of EVs. Here’s what you need to know

The future of Australia’s electric vehicle uptake rests on a High Court case that has pitted the Commonwealth against every state and territory in Australia over taxing EV usage, in what is considered the largest constitutional battle in decades.

In one corner are drivers Chris Vanderstock and Kath Davies, who brought a case against the Victorian government over it charging zero and low-emission cars for every kilometre driven on public roads since July last year, known as the Zero and Low Emission Vehicle Distance-Based Charge Act 2021 (ZLEV).

The Commonwealth is backing the couple in, and should the Victorian duo win, it would allow the federal government to explore implementing its own road user tax that could replace the income lost from the fuel excise as drivers increasingly turn to electric vehicles.

In the other corner is the state of Victoria, which says the ZLEV charge is not some sort of cash-grab excise, but rather a user charge that funds the development and maintenance of Australian roads including new electric-vehicle-charging infrastructure and reforms.

Since July 1 last year, owners of electric and hydrogen vehicles have been required to pay 2.6¢ for every kilometre driven on public roads, while plug-in hybrid owners pay 2.1¢ for each kilometre.

Marque Lawyers’ principal Michael Bradley tells SmartCompany that the EV industry as a whole will be watching the case extremely closely in the hope it succeeds and the Victorian levy is declared unconstitutional.

“The combination of a hotch-potch of state-based laws and the states’ perennial desire to grab cash wherever they can without much regard for the national economic impact would be a nightmare,” he said.

“The transition to EVs would be far better managed at the federal level so at least it’s consistent and other considerations — environmental and economic — are also taken into account, not just revenue.”

The case against the EV road charge

Vanderstock and Davies, both EV drivers, are arguing the EV charge imposes a “duty of excise” which is beyond the powers of the Victorian Parliament. That’s because, according to their submission, the ZLEV charge is a tax on the consumption of goods.

The court must decide two things: namely, is a tax on the consumption of goods a tax “upon goods”? And if it is, does this EV charge count as one?

In other words, as Bradley continues, “it’s a really arcane constitutional argument about Section 90 of the Constitution, which gives the Commonwealth parliament exclusive power to impose excise duties (taxes on goods)”.

And the answers are far from clear, based on precedent anyway, he says, as the High Court has been “all over the shop” on the first of the two questions since Federation.

Take alcohol, tobacco and fuel, which all had levy duties imposed by the states and territories until a game-changing 1997 High Court decision in consideration of Section 90 that found the collection was unconstitutional.

“That put an end to all the state-based fuel levies, and the Commonwealth has been imposing a fuel excise ever since,” Bradley explained.

“Victoria’s move is a direct challenge to that regime, and it’ll reopen the principle from Ha (which was decided by 4-3 majority).”

But Bradley says it’s anyone’s guess which way the High Court will go this time.

“Section 90 is very difficult to understand, let alone apply.”

The case for the EV road charge

The Victorian government has argued that the ZLEV is, by definition, not an excise. It’s not charged during the production process, or at the point of sale, but rather a long time afterwards at the end of a car’s registration period.

Plus, the state government says, it’s not calculated based on the value of the EV, but rather on the number of kilometres travelled, which the driver has to be forthcoming about at rego time.

In addition, if a driver only used roads on agricultural properties or mining sites, they would never pay a dime.

“A charge of this kind, imposed periodically after the point of sale and incurred only if a person engages in a specific activity involving use of the good, bears no resemblance to any charge previously considered by this Court to be a tax on goods, let alone an excise,” the state government’s submission reads.

Submissions from every state and territory agreed with Victoria. Queensland called it “a direct and personal tax”, not an excise, while WA declared it a “usage consumption tax” (though it is in their interest for such a tax to continue at a state level).

Plus, the Victorian government says, it’s helping us in our goal to ensure half of all cars sold in 2030 are low-emissions — either hybrid vehicles or electric vehicles — by funding the government’s $100 million EV package.

And drivers benefit too via a $100 discount on their annual registration, while prospective owners can get a $3000 discount on low-emissions vehicles that cost less than $68,740.

Business left out of the loop

But spotty laws for EVs across different state and territory jurisdictions would be an administrative nightmare for businesses who would be considering an electrified fleet of cars.

The EV Council’s Behyad Jafari says it would only deter consumers and businesses to stick to the internal combustible engine cars so as to not have to keep up with the differing rules across state lines.

If the Commonwealth-backed pair were to succeed, it could also mean business is up for an extra charge per kilometre on electrified fleets across the country, slightly reducing the financial benefit of going electric in states and territories other than Victoria.

That’s because the federal government could, in theory, replace the $5.6 billion it collects from the fuel excise with its own road user tax, as EVs eventually overtake petrol-powered cars on our roads (though state governments may follow in Victoria’s footsteps and introduce their own ZLEV anyway).

The fuel excise — 44.2c a litre — once helped fund the maintenance of our roads, but since 1992 has gone into the government’s general coffers.

It was slashed in half in March of this year by the Coalition as Russia’s invasion of Ukraine sent gas prices soaring, but returned with a vengeance in September, indexed with CPI to become 46 cents a litre.

Treasurer Jim Chalmers insisted the government could not afford to extend the cut despite petrol prices remaining high, arguing it had cost the government $3 billion in lost revenue for the six months it was in effect.

“We’re under no illusions this will be difficult for people. It’s a difficult decision for us to take as well,” Chalmers said.