A stoush between the commonwealth and states over electric vehicle taxes has moved closer to a high court hearing in a process carrying wide-ranging implications for revenue raising, lawyers say.
In September 2021, two drivers of electric cars launched a high court challenge that argued the imposition of a tax of 2-2.5 cents per kilometre by the Victorian government was unconstitutional because the state does not have the constitutional power to impose such fees.
A special case on the matter was filed on Monday with a hearing expected late this year or early in 2023, Jack McLean, an associate of Equity Generation Lawyers that filed the original challenge, said.
New South Wales became the first to intervene on the side of the Victorian government two months ago, with all states and territories signing up by July. In that month, the commonwealth government intervened on the side of the Melbourne-based plaintiffs, engineering consultant Kathleen Davies and nurse manager Chris Vanderstock.
“The case has potentially broad legal implications for the ability of state governments to impose similar taxes,” McLean said.
The right of governments other than the commonwealth to raise revenue has frequently been tested in the high court. Australia has a relatively high degree of vertical fiscal imbalance, where most of the revenue-raising is done by the federal government but much of the spending is done by states and territories.
When introduced in April 2021, the Victorian tax was pilloried by some as the “worst EV policy in the world”, an issue the plaintiffs hope to highlight.
“Our clients want to see sensible and effective policy that drives the energy transition, not a new clunky new tax that punishes Victorian families who have decided to make the switch to cleaner cars that are better for the environment and better for our children’s health,” McLean said.
“By making electric vehicles more expensive, this tax disincentivises Victorians from making the switch to cleaner cars that cut emissions and improve air quality,” he said. “In short, it’s bad for the climate, it’s bad for Victorians, and it may be unconstitutional.”
A spokesperson for the federal attorney general, Mark Dreyfus, agreed that the case may carry “implications for longstanding constitutional principles in relation to revenue and economic policy”.
“The commonwealth’s interest in the case concerns these constitutional principles,” the spokesperson said.
Anne Twomey, a University of Sydney professor specialising in constitutional law, said the issue will come down to definitions over how the tax is being applied under section 90 of the constitution.
“States cannot impose excises – being taxes on goods,” Twomey said. “An excise has until now been defined as a tax on a step from production/manufacture of the goods to its point of sale to the consumer.”
“Once the consumer owns the goods, however, a tax on them is not an excise, but rather a consumption tax, which has been treated as not being prohibited by the constitution,” she said. “A tax upon the usage of EVs, after they have already passed into the hands of consumers, calculated by reference to their usage, would be a classic consumption tax.”
“It would be a significant departure from precedent if the high court held that such a consumption tax now also fell within the category of an excise,” Twomey said, citing decisions such as the Dickenson’s Arcade case in 1974.
For its part, Victoria has sought to highlight its effort to apply a road-user fee for EV owners who have no or limited exposure to the fuel excise that the federal government collects.
“The road-user charge for zero and low-emission vehicles ensures a fair and sustainable revenue base to fund investments in the road network,” a Victorian government spokesperson said.
“We’re backing the switch to electric vehicles with a $100m package of incentives and support for motorists and industry, made possible by the road user charge,” he said.
McLean said the two original plaintiffs in the case had also been motivated by the fact the tax applied to use on public roads by those with a Victorian registration even if they were driving outside the state.
“The fact that Victorian electric vehicle drivers are taxed for driving on roads in other states and territories only adds to the sense of frustration felt by our clients about this tax,” he said.
The Albanese government said it wanted to cooperate with states and territories to develop policies on electric vehicles. Data from the Federal Chamber of Automotive Industries out on Monday showed EVs made up a record high 4.4% of car sales for August.
“Unlike the former government, the Albanese government knows that EVs reduce running costs as well as emissions,” the spokesperson for Dreyfus said.