The Australian government has opted to retain its full electric vehicle discount for another year, as Australians rush to buy EVs amid soaring fuel costs linked to the Iran war. The policy, introduced at the start of 2023, cuts thousands of dollars from the cost of leasing an eligible EV through an exemption to fringe benefits tax.
Changes to the EV Discount
Treasurer Jim Chalmers and Energy Minister Chris Bowen announced in a joint statement on Monday evening that the full discount would be extended until the end of March 2027. After that, it will only apply to vehicles costing under $75,000 until the start of April 2029. During this second phase, EVs costing more than $75,000 but below the luxury car tax threshold—currently set at $91,387 for fuel-efficient vehicles—will receive a 25% FBT discount. In the final phase, from 1 April 2029, the incentive will be limited to a 25% discount for all EVs below the luxury car tax threshold.
Cost Blow-Out and Political Calculus
When Labor first pitched the policy before the 2022 election, it was projected to cost $605 million in the seven years to 2029. Treasury most recently estimated it would cost $10.1 billion over the same period, according to the Grattan Institute. The unexpected popularity of the scheme has resulted in major cost blow-outs that had seemed to dampen its appeal in Canberra. However, the closure of the Strait of Hormuz at the end of February and the ensuing spike in fuel costs triggered a flood of interest in electric cars, which may have changed the political calculus around the policy.
Market Response
EVs accounted for 15% of new car sales in March, double the share from a year earlier, according to the Federal Chamber of Automotive Industries. Sales of Tesla and Polestar vehicles in the first four months of this year were up 47% against the same period last year, data from the Electric Vehicle Council showed. Chinese carmakers such as BYD now sell EVs for as little as $26,000.
Government Justification
Prime Minister Anthony Albanese energetically defended Labor's backing for electric cars and home batteries, despite the cost blow-outs. 'I don't think there's anyone out there today who has bought an electric vehicle who's regretting the decision at this point in time,' he said. The government aims to encourage manufacturers to offer more affordable and cheaper-to-run EVs in the Australian market, with the new rules focusing the FBT exemption on these cars.
