Labor's plan to promote EVs

FEDERAL LABOR LEADER ANTHONY ALBANESE, CHRIS BOWEN AND ED HUSIC VISITING A NISSAN LEAF ELECTRIC CAR DEALER. SOURCE: ANTHONY ALBANESE/FACEBOOK/THE DRIVEN

The Australian Labor Party (ALP) won the recent election on a platform of action on climate change, among other policies.  They plan to reduce emissions by 43% by 2030, which is a quite respectable compound rate of decline of 6% per annum. [Update, 2/7/22:  Since emissions have already fallen ±20% since 2005 because of a slowdown in forest clearing (though many question the data), the effective decline by 2030 is in fact just 23%, or a puny 3% per annum]

One of the prongs of their plan is to promote EVs.   And they have come up with a clever way to do that.

We have in Oz a tax called the 'Fringe Benefits Tax'.  If your employer provides you with a non-salaried benefit, for example, a car, the cost of the lease is treated as a fringe benefit, and is subject to a 47% tax, which your employer has to pay.  In most cases, your employer will quote a salary package to you, and if you want to buy a car through them, they will reduce your salary by the amount of the car's lease plus FBT.  This is called 'salary sacrifice'.  You pay income tax only on your net income after the car's lease costs plus FBT have been deducted.  

What Labor plans to do is to remove FBT from all EVs below the luxury car tax threshold, which in the new fiscal year, beginning 1st July,  is $85,000.  This in effect means that the cost of your EV will be reduced by your marginal tax rate, since it won't be included in your income, and therefore won't be taxed.   This makes EVs much more attractive.  

Since EVs have a 'sticker price' higher than petrol cars, but are cheaper to run, a lease arrangement  makes a lot of sense, and even more so now, since EVs will be exempt from FBT.  A Tesla Model 3 costs around A$71,000.  If your marginal tax rate is 32.5%, that means the effective cost of the Model 3 is reduced by 32.5%, i.e., to around $48K.  The cost of Australia's cheapest EV, the MG ZS, is $50K, which after tax goes down to about $34K.    The Nissan Leaf is ±$51K.  For comparison, the petrol Toyota Camry costs just over $30K, and the hybrid version is about $36K.  To give you some idea of just how big this market could be, 30% of  Camry sales are hybrids.  

You won't get this benefit if you buy the car yourself.  But with this tax change, most employers will restructure their salary sacrifice schemes to allow their employees to buy EVs, and even if they don't, most leases are just for 3 years, at which point the car is sold and a new one bought.  With the massive take-up likely, there will a flood of second-hand EVs on the market in 3 years' time.  Moreover, the large expansion of the EV market will encourage other carmakers, such as BYD, to enter our market.

This clever policy change will drive very rapid increases in  EV penetration.  It will increase the number of models available, and increase the supply of second-hand EVs.  It will rapidly cut our emissions from land transport.