New research from Griffith University shows the Fringe Benefit Tax (FBT) exemption on electric vehicles (EV) is inequitable and disproportionately benefits those who can already afford to buy one.

Projected to cost $205 million to the public purse, the tax exemption was put in place to encourage a greater uptake of EVs and contribute to the reduction of emissions.

The paper showed the FBT EV exemption was a ‘blunt instrument’ and described how certain groups could be financially worse off for taking advantage of the ‘incentive’.

Research author from the Griffith Department of Accounting, Finance and Economics, Dr Anna Mortimore.

The EV may be exempt from FBT, but the EV benefit was not exempt from employees’ ‘income tests’ and was a disincentive when applying for government entitlements such as family assistance, child support assistance and may also mean higher Medicare benefits surcharge and Higher Education Contribution Scheme payments.

“This is an unfortunate outcome for some people who may have unknowingly pushed themselves into a higher income bracket, (known as ‘adjustable taxable value’) because they took advantage of the scheme,” said research author from the Department of Accounting, Finance and Economics Dr Anna Mortimore.

“We also found the FBT EV exemption disproportionately benefits high-end early adopters at the expense of the wider public.

“Theory suggests innovators and early adopters are most likely to purchase an EV despite incentives because they generally have a high income, are university educated and are often technologically and environmentally inclined.

“The tax incentive is not fair and equitable to all employees and is making high-end early adopters better off because cost isn’t their main objective, and the tax savings comes out of the public purse which makes everyone worse off.”

The Australian Government projected EV sales to increase to 89 per cent of new car sales by 2030 and the transport mix would comprise 15 per cent EVs in by 2030.

Transport was projected to be Australia’s largest source of emissions by 2030 and decarbonisation of transportation was critical to limiting global warming to 1.5 degrees Celsius and meeting the 2015 Paris accord.

European governments have shown how a suite of measures to encourage EV uptake could work well and promoted equitable uptake of eligible electric vehicles as shown by France, which provided an $8000 income tested incentive, and saw 26 per cent new car registrations being electric vehicles in 2023, compared with 7 per cent in Australia.

“Review of the FBT EV exemption isn’t due until mid-2027, so unless we push to have the review brought forward, we are locked into a scheme that is inequitable and won’t deliver the desired outcome,” Dr Mortimore said.

“If we are serious about increasing EVs on our streets, we must move beyond incentivising Innovators and Early Adopters and target the mainstream consumers.”

The research paper titled ‘Assessing the Effectiveness of the Fringe Benefit Tax Exemption in Increasing the Uptake of Electric Vehicles’ was published in the Australian Tax Review.

10: Reduced Inequalities
UN Sustainable Development Goals 10: Reduced Inequalities

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