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A landmark High Court judgment rejecting Victoria’s electric vehicle levy could blow a billion-dollar hole in future state budgets and puts pressure on the federal government to introduce a national road-user charge.

The court identified other state taxes that might be affected by the decision, including duties on the transfer or conveyance of goods, motor vehicle duties, vehicle registration charges and waste disposal levies.

Electric vehicle owner Chris Vanderstock has successfully taken the Victorian government to the High Court. Credit: Chris Hopkins

On Wednesday, the court found in favour of two Victorian plaintiffs – Chris Vanderstock and Kathleen Davies – agreeing that the state of Victoria lacked the constitutional power to tax EV drivers with a road-user charge.

The decision “caught everyone off guard”, NSW Premier Chris Minns said afterwards, adding that road-user charges generated billions of dollars for the NSW Treasury.

“We’ll have to examine the ruling and speak to the Commonwealth about how we fund future road projects across NSW,” he said. NSW and Western Australia had planned to introduce road-user charges for EVs from 2027.

Victoria’s EV tax had been described as the “worst electric vehicle policy in the world” by carmakers, industry groups and environmentalists, and the Victorian Ombudsman recently found the legislation was being unfairly administered.

Vanderstock and Davies were represented by Equity Generation Lawyers, the legal firm that acted for eight teenagers in a landmark climate-related court action against former federal environment minister Sussan Ley.

Every state and territory had intervened in the latest case on Victoria’s side, while the plaintiffs were supported by the Commonwealth.

The High Court had to decide whether the power to issue a charge such as the EV tax sat with the federal government or the states. In particular, it had to decide whether the EV tax was an excise. Under the Constitution, only the federal government can impose excises. Wednesday’s decision found it was an excise, and therefore something only the federal government could impose.

“Australia is lagging behind the rest of the world on electric vehicle uptake,” Equity Generation Lawyers senior associate David Hertzberg said. “Now is not the time to be taxing electric vehicles; it’s the time to be doing everything we can to encourage people to make the switch to cleaner cars.”

Kathleen Davies was also a plaintiff in the High Court case.Credit: Jason South

Hertzberg said the law firm would investigate whether its clients were entitled to refunds but noted this was “not necessarily straightforward”.

In 2022, the transport sector contributed 19 per cent of Australia’s carbon emissions. Electric vehicles are seen as essential to achieving Australia’s economy-wide emissions reduction target of 43 per cent below 2005 levels by 2030.

The Australian Automobile Association, the peak organisation for Australia’s motoring clubs, said the High Court decision gave the federal government a major tax reform opportunity.

“Growth in more fuel-efficient vehicles and new technologies means the government is going to be confronted with declining fuel excise revenue in the future,” said managing director Michael Bradley.

The AAA’s position was that electric and other zero-emission vehicles should urgently be brought into the road-use tax system, initially at a discounted rate to avoid hindering the take-up of EVs and other low-emission technology, he said.

While the transition to electric vehicles will have many benefits, including lower emissions and improved air quality, without a change of policy there would also be a fiscal impact from loss of fuel excise receipts, the federal Treasury found in its 2023 Intergenerational Report.

Victorian Treasurer Tim Pallas.Credit: Eamon Gallagher

Following the court ruling, Greens leader Adam Bandt called on the federal government to rule out introducing an EV tax, saying the priority should be on increasing taxes on corporations and the richest Australians, not EV owners.

“We should be making electric vehicles cheaper and more affordable, not making them more expensive,” he said.

Plaintiff Chris Vanderstock, who owns two electric vehicles and commutes to his job as a nurse manager, said the High Court ruling was a great outcome for Victorian electric vehicle drivers and all Australians.

“I’m ecstatic,” he said. “This now paves the way for coherent, rational, fair policy, because what Victoria had done was unfair and ignored the benefits of EVs.”

The court challenge was a response to Victorian Treasurer Tim Pallas’ decision to introduce a controversial levy in 2021 that charged electric vehicle drivers between 2.2¢ and 2.6¢ for every kilometre they drove.

Pallas said he would examine the consequences of the decision but did not commit to paying back the tax to Victorians who had paid it so far.

Grattan Institute transport and cities program director Marion Terrill said the court’s decision suggested state and federal governments needed to reconsider how they taxed drivers and funded infrastructure before electric car uptake began to force significant declines in revenue from fuel taxes.

While states could not tax drivers per kilometre, they could still introduce fees on driving in congested areas during peak periods, she said.

Electric Vehicle Council head Behyad Jafari said the ruling should encourage the federal government to work on a uniform national approach to road-funding reform and speed up the uptake of electric vehicles.

“The serious work of road funding reform was being squibbed, just so the Victorian government could throw a new tax on EVs,” he said, calling for drivers who had been charged to receive refunds.

Earlier this year, the federal government released Australia’s first national electric vehicle strategy. It included policies to support investment in charging infrastructure and recycling programs for large batteries, but it did not include targets for EV uptake or the detail of a fuel efficiency standard.

A fuel efficiency standard would create an emissions cap across a car manufacturer’s overall sales and encourage importation of EVs.

A spokesperson for the Victorian government said it was disappointed with the outcome but accepted the court’s ruling and would take time to consider the judgment. The road-user charge raised $3.9 million in 2022-23.

A spokesperson for federal Treasurer Jim Chalmers said the government acknowledged the decision and would have more to say soon.

With Nick O’Malley

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