A challenge to a charge on electric cars using roads has triggered a legal stoush between the states and the Commonwealth. How did it get so big? And what does it mean for motorists?
There are just over 83,000 electric vehicles on Australian roads, almost half of them bought in 2022. That number is expected to grow exponentially, with the ACT already planning to ban the sale of new petrol cars in 2035.
An attempt to make these electric car owners pay to drive on public roads has now turned into a high-stakes legal stoush pitting the Commonwealth against the states and territories.
The case, brought by two EV owners, has landed in the High Court. At stake is not only the future of how we pay to use and maintain our roads, but also how states can tax their citizens.
How did a case about cars get to be so huge? And what does it mean for motorists?
Credit:Artwork Stephen Kiprillis
What’s this case all about?
Most motorists don’t know it, but Australia has long had a road tax: the fuel excise levy, which has just gone up from 45 cents to 47 on every litre of petrol. An average driver pays $715 or so a year in fuel excises – but, of course, if your car doesn’t run on petrol, you’re not paying this.
Except in Victoria. There, since July 2021 if you drive an electric car you’ve had to pay for every kilometre you travel – now 2.6 cents – under the first scheme in Australia to get EV owners to pay to use public roads. The average EV driver ends up forking out about $350 a year. And the Andrews government says that’s only fair. NSW and Western Australia plan to impose their own EV road-user charges from 2027.
But environmentalists and carmakers have sounded the horn on the policy. They say it’s a handbrake on Australia’s already slow uptake of low-emissions vehicles. Cars produce 9 per cent of Australia’s annual carbon emissions.
Now two Victorian EV owners, Chris Vanderstock and Kathleen Davies, have taken the fight to Canberra. They’ve teamed up with climate change law specialists Equity Generation Lawyers to challenge Victoria’s Zero and Low Emission Vehicle Distance-based Charge Act in the High Court.
Electric vehicle owners Chris Vanderstock and Kath Davies outside the High Court.Credit:James Brickwood
Why is it such a big deal?
The federal government intervened in the case to support Vanderstock and Davies. All the other states and territories back Victoria. It’s not so much David and Goliath as states versus feds. That’s a big stoush, and it could have far-reaching consequences.
“It’s not really about the electric vehicle charge,” says Monash University constitutional law professor Luke Beck. “The broader and more important issue is about the full scope of the states’ ability to raise taxation revenue.”
Section 90 of the Constitution says only the Commonwealth has the power to impose excises – but exactly what an excise is has been hotly debated. The High Court has taken various positions over the years, in cases over state and territory licences to sell alcohol, cigarettes and, in one case against the ACT, pornographic videotapes.
“It opens up potentially billions of dollars of additional revenue sources for the state.”
In the landmark 1997 case Ha v New South Wales, the court decided (four judgments to three) that NSW tobacco licensing fees were unconstitutional because they were partly calculated on the volume of cigarettes sold, and a tax on volume is an excise. This stopped the states from taxing not only tobacco but alcohol and petrol too. That was a big blow to states’ ability to fill their own coffers.
Beck says the question has lain dormant until now: states have been less inclined to impose goods-related taxes since the federal government introduced a GST in 2000 – the states and territories get the revenue from this 10 per cent tax on goods and services. A Victorian win could clear the way for states to impose new taxes on the use of goods, he says. “It opens up potentially billions of dollars of additional revenue sources for the state.”
A car park at a shopping centre in Cammeray in Sydney in 2021.Credit:Getty Images
What were the arguments in this case?
The EV case was heard by a full bench of the High Court (seven justices) over three days in Canberra this week. Victoria is arguing its EV charge is not an excise because it is levied on an activity – driving – and not on goods.
But Commonwealth Solicitor-General Stephen Donaghue told the court that any potential EV buyer would be influenced by the knowledge they would have to pay the road user charge, which distorted the market, just like a tax. “If we think the tendency of the tax is to do that … then it can be an excise in just the same way as a sales tax can be because we do not permit states to distort the national market,” he said. “That is an exclusive power for the Commonwealth.”
Donaghue raised a hypothetical of Australia developing its own hydrogen-powered car industry and imposing federal tariffs on overseas-made models. If the EV charge was valid, it would mean states could “impose taxes to increase the cost of using locally produced ZLEVs [zero and low-emissions vehicles] and therefore work against the tariff policy that the Commonwealth was seeking to put in place,” he said. In other words, even if you take the position that the purpose of section 90 is not so much to constrain states broadly but merely to stop states interfering with federal tariffs, it’s still problematic.
What will the court’s decision mean for motorists?
If Victoria’s EV charge is thrown out, it will likely only be a reprieve for those motorists, with the Commonwealth expected to eventually introduce its own “road user charge”.
The federal government collects about $12 billion in fuel excise every year, which covers about a third of the cost of maintaining the nation’s road networks, but that will rapidly disappear if Australia follows the rest of the world and shifts to EVs.
National Transport Research Organisation CEO Michael Caltabiano says Australia urgently needs to find a replacement for fuel excise revenue as EV sales gather speed.
“If we have eight different charging regimes, as you cross borders, what happens?”
But Caltabiano says there are major complications in replacing a federal tax and funding regime with a patchwork of schemes confined within each state and territory.
“How do you equitably charge access? If we have eight different charging regimes, as you cross borders, what happens?” he says. “These are really complex problems that need to be solved as we move to a zero-emissions fleet, and we haven’t really engaged with the problem holistically.”
Australian Automobiles Association CEO Michael Bradley says he hopes the High Court case will “clarify which level of government will be tasked with developing a sustainable, equitable transport taxation system that allows governments to fund our roads”.
What else could this case change?
Victoria’s Solicitor-General lawyer Rowena Orr KC told the High Court this week if the court finds the state’s EV charge invalid, it could jeopardise a raft of other state levies such as those on poker machines, online gambling, ride-share companies and waste disposal.
The state may even lose the ability to impose a road congestion charge, like that used to manage traffic in central London, Orr said. “It is important for your honours to consider the purpose that those imperilled statutes serve and … the consequences of rendering them invalid.”
“It’s really about the Commonwealth getting more power over the states.”
Meanwhile, Donaghue told the court that states may be tempted to impose more, similar taxes as improving technology makes it easier for them to track how people use certain goods.
A decision from the court is not expected for at least a couple of months. Anne Twomey, professor of constitutional law at Sydney University, says a decision against Victoria could entrench the “extraordinarily” unbalanced relationship between the states and federal governments to “exacerbate a bad system and make it worse”.
“The Commonwealth has most of the power to collect taxes, whereas the states have most of the responsibility to spend … and there are arguments about how that is done,” she says. “It’s really about the Commonwealth getting more power over the states and more spending power to then decide how money is spent.”
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