Dr Chris Jones, AEVA President.
After Australia’s High Court ruled states and territories cannot charge electric vehicle (EV) drivers a road user charge (RUC) the subject of funding for land transport officially became fair game. Since responsibility for such a measure falls on the Commonwealth, will our elected representatives in Canberra ever follow through with a viable revenue model? Why do we spend so much on new roads and maintaining current ones as we do anyway? Should this all come from general taxation? Or is there a sensible mechanism we can implement which better reflects road usage, and ultimately drive change? This article makes the case for a federally collected, state-administered, universal, mass × distance RUC. The proceeds would be returned to the states proportionately as road maintenance funds.
EV drivers aren’t paying road tax!
Australia does not have road tax, or ever had it. Accuse EV drivers of avoiding ‘road tax’ all you like, but we can’t be held liable for a charge that doesn’t exist. What we do have is income tax and fuel excise (Commonwealth government), registration fees and stamp duty (state and territory governments), along with council rates and parking fees (local government). All three levels of government collect road-related revenue and put this into consolidated revenue. This is eventually spent in places of need – healthcare, welfare, schools and recreational centres, ports, railways and roads. It should be noted that federally collected road revenue has not been hypothecated to roads or road maintenance since 1959, and was effectively decoupled in 1992. Fuel excise does not pay for roads any more than iron ore royalties pay for Medicare, or income taxes pay for pensions.
Fuel excise is levied on every litre of petrol, diesel or LPG at 50.6 c/litre (July 2024). Since 2014, efforts to align roads expenditure with excise revenue has returned somewhat, along with reintroducing indexation to inflation, but the revenue gap remains. On average fuel excise contributes to about 30% of total roads expenditure. Not least because about 40% of the fuel excise revenue is returned to businesses, miners, farmers and freight operators in the form of a fuel tax credit (FTC). The scheme returns money to businesses using fuel for production of food, energy and minerals, as well as a partial credit to heavy vehicle operators. Whether or not FTCs are a subsidy or a rebate really depends on whether one views fuel excise as a road tax or a generalised revenue source. Either way, petrol and diesel are much cheaper when you aren’t using it for driving on public roads.
Some kind of fuel excise has been in place since Federation. Considering roughly $10 billion is left over after the credits are distributed, and annual roads expenditure is $34 billion, the shortfall is clear. The average Australian passenger car with an internal combustion engine (ICE) has a fuel economy of just 10 L/100 km, so drivers hand about 5 c/km to the government in fuel excise. With retail fuel prices often at $2.10 per litre, the full on-road cost of motoring is more like 21 c/km, and that doesn’t even include toll roads. Clearly, the heavier and more inefficient your ICE vehicle, the more excise you pay.
A very fuel efficient hybrid vehicle might average 3.5 L/100 km so the effective per-kilometre fuel excise is only 1.75 c/km. Despite this car taking up just as much space and causing the same wear as any other compact car, yet pays half as much in excise. EV drivers don’t even buy fuel, so they pay no fuel excise. Fuel excise may not be a road tax, but it is a tax on liquid fuel, normally used for driving ICE vehicles on public roads.
User pays?
User pays is a fairly simple concept; you’re charged proportionally to how much, or how often you consume a product or use a service. Fuel excise means those who drive further each year inflict more damage on roads and bridges. Should the driver choose a heavier vehicle, they will necessarily buy more fuel, cause more damage, but also make a commensurate contribution to the coffers.
Taxes and excises can also be used quite effectively to discourage harmful behaviours, like consuming alcohol and tobacco. The significant external cost inflicted by alcohol and tobacco is paid for by society through healthcare and social welfare, so taxes can discourage their consumption. Considering road trauma takes the lives of 1200 Australians a year, and pollution-induced respiratory illness claims at least as many more, what cost seems appropriate for a road user? Would a higher fuel excise discourage excessive consumption of fuel?
Driving private automobiles on publicly funded roads can be highly discretionary. One may choose to take the bus or walk, or they may choose to drive a private vehicle of any size, any fuel type, and park it wherever they like. This has a significant negative external impact on others and thus, some kind of user-pays model is deployed when collecting revenue. States and territories have varying rates for registration based on vehicle weight, tailpipe emissions, number of cylinders or number of seats. These represent cost of privilege to drive on public roads, regardless of whether you do, or not. Fuel excise is effectively a user-pays model for the mobile costs associated with motoring, albeit with some glaring inconsistencies.
How much do we spend on roads anyway?
Annual roads expenditure by all levels of government exceeded $35 billion in 2023. Considering there are almost 20 million registered passenger vehicles that equates to roughly $1700 per vehicle. State registration fees and stamp duty accounts for about two-thirds of this, with the difference coming from local and Commonwealth revenue. Fuel excise is not the primary source of road funding.
Australia’s dependence on private cars for daily transport comes with a huge price tag, both in direct and externalised costs. Over the past 25 years, Australian governments have collectively spent half a trillion dollars on road infrastructure. In that time, our population has grown by 27%. One could reason that if the overall expenditure on new roads was reduced, the burden of maintaining the ones we’ve got seems far more manageable. Road departments often cite ‘unmet demand’ as a pre-emptive investment in road capacity however congested routes always cause travellers to seek alternative means. If the road is widened, driving becomes easier so commuters just return to the car. Induced demand is nothing new, but state governments clearly can’t say no to a road duplication.
Regardless of fuel source, roads cost money to build and maintain. In the 1950s, it was determined that heavy trucks inflicted so much damage to roads the phenomenon earned its own name – the ‘fourth power law’. Because of our reliance on road freight instead of rail, Australia’s highways are engineered to withstand road trains of over 160 tonnes gross combined mass, so most roads are very expensive to build and maintain. The other factor is how far one drives. The average Australian vehicle clocks up about 12,000 km per year. There is a huge spread of annual distances, but suburban Australians typically drive the same distances as their regional counterparts.
If we accept that motoring should have a cost, but that cost should be fair, then a pay-per-use component which accounts for both distance and damage inflicted on road infrastructure as well as addressing the discretionary aspects of private motoring seems appropriate. If the goal is to match and replace the current fuel excise experienced by consumers (approximately 5 c/km on average) a simple equation is proposed:
Annual charge = vehicle tare mass × distance driven × RUC
Since most passenger vehicles are only moving the driver and their lunch, the un-laden weight of the vehicle is appropriate. Distance travelled between registration renewals is simply the latest odometer reading minus the previous reading, which can be disclosed at the time of payment. A charge of 3 c/t•km is equivalent to the current 50.6 c/l excise, based on average efficiencies and vehicle kerb weights. Using this equation, vehicles travelling 14,000 km per year would pay:
Mazda 3; tare 1.38 ton, RUC cost: $580
Hilux 4x4; tare 2.1 ton, RUC cost $882
Tesla Model 3; tare 2.1 ton, RUC cost: $882
Honda CB125F motorcycle; tare 117 kg, RUC cost $49
Zero SRS Electric motorcycle; tare 200 kg, RUC cost $84
Registration, compulsory third party insurance, and fuel or electricity costs would be in addition to these annual RUC fees. Considering the efficiency of the EV and the low cost of electricity, the EV still comes out cheaper to operate. It follows then, that heavy goods vehicles and buses (any vehicle with a gross vehicle mass over 4.5 t) should also be included in the scheme, and considering the fourth power rule, this may prove contentious. Based on fuel consumption rates of heavy vehicles, a simple rate of 0.5 c/t•km for heavy vehicles would set a simple benchmark. As these vehicles are used for revenue service, the laden, or gross combined mass of the heavy vehicle should be used to calculate the RUC. Thus for a heavy vehicle driving 80,000 km per year and a GCM of 42 ton, the annual RUC would be:
Kenworth T900 + trailer; GCM 42 ton, RUC cost: 0.5 c/t•km × 42 t × 80,000 km = $16,800.
The same loaded truck would have an average fuel economy of 70 litres per 100 km, so driving the same distance would have otherwise resulted in 0.7 l/km × 80,000 km × 30.5 c/l = $17,080 in fuel excise.
Weight must be a key component of the RUC
Australians are embracing the 2 ton-plus family car. Car buyers feel safer when riding in larger vehicles, but this ignores the safety of everyone outside of the car. Pedestrians are three times more likely to die from an SUV collision than a sedan, while visibility is significantly worse for large SUVs and 4x4s; resulting in a disturbing increase in front-over injuries and fatalities. Large vehicles are also fuelling an arms race where the safer vehicle to be in, is the bigger one; an analysis of two-vehicle crashes showed the likelihood of the occupants of the lighter vehicle dying increased exponentially with the heavier vehicles mass.
Thus, a mass × distance RUC will also prove useful in shifting consumer behaviour. If the choice is between a compact SUV and a dual-cab 4x4, then the decision might be swayed by the mass component of the RUC. If you only take one camping trip per year, driving 2.5 tonne truck to work all year would start to get very expensive. This holds true for EVs as well – a poorly engineered EV will have little regard for tare mass, and ultimately cost more to run. The weight component will also help compel manufacturers to offer more efficient, lighter EVs.
Conclusion
The expected decline in fuel excise revenue, the rise of hybrids and EVs, and the disproportionate spending on road transport over rail or transit, is all pointing towards an eventual overhaul of how we cost land transport. The AEVA would support a federally collected, state-administered, universal, mass × distance RUC in place of fuel excise, as a means to better reflect the cost of maintaining our roads. It is simple to follow, hard to avoid and easy to administer. Heavy vehicles will need to be included in this too. The rate would no doubt need to be discounted compared to light vehicles, as freight logistics is a highly competitive, input-cost-sensitive sector. But at a minimum it should equate to what their fuel excise would have otherwise been, with the mass component derived from the laden mass of the vehicle. The rate may be adjusted as needed, with a concurrent push to move more freight off roads, and onto intermodal rail.
Removing the fuel excise also removes the need for fuel tax credits for agriculture or mining as it only impacts vehicles using public roads. While retaining the fuel excise may continue serve as a disincentive to drive an ICE vehicle, it would see those yet to shift to an EV being charged twice, which won’t be popular. But it is essential that a RUC not be applied exclusively to EVs as this would hold back their uptake, reducing the case for shifting to electric from ICE.
A universal RUC would not replace the need for ongoing investment in better connected land transport networks or essential infrastructure, but it would represent a fairer and more representative approach to the user-pays component of road-going passenger vehicles, and remove the inefficient FTC system. Motoring shouldn’t be free, but it shouldn’t send us broke either.