iscoverThe Productivity Commission is urging Labor to abolish its fringe benefits tax break for electric vehicles, receiving significant backlash from the electric vehicle community.
Calls to scrap EV FBT continue to spark industry debate
20 August 2025
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9 minute read
Data has revealed the Albanese government’s measure to boost electric vehicle uptake will cost more than $23 billion over the next 10 years in the exemption of fringe benefits tax.
Following the publication of this perceived cost, the Productivity Commission urged the government to “dump” its EV policy at the Economic Reform Roundtable.
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The Productivity Commission said the exemption needed to be abolished as it cost taxpayers between $1,000 to $20,000 per tonne of carbon dioxide abated, yet members of the EV community said it had been successful in keeping money in taxpayers’ pockets.
When the tax break was first introduced in July 2022, Treasury estimated around 4,700 people to take out a novated lease for an EV, however this was blown out by 100,000 drivers having taken one out.
The Australian Financial Review reported the tax break was set to cost $285 million this financial year, $623 million in 2026–27 and $945 million in 2027–28, figures that were significantly higher than first projected by Treasury.
As the Economic Reform Roundtable was now underway, it was noted Treasurer Jim Chalmers would likely be under pressure to scrap the policy as it was “widely disliked” by economists and the Productivity Commission.
However, EV experts have said the EV FBT exemption was being spoken about in terms of cost per tonne of carbon dioxide, rather than in terms of household and taxpayer benefit.
Dennis Balada, EV expert, said the EV FBT exemption being described as a cost “raised blood pressure”, as “the government letting Australians keep more of their own money is not the same as writing cheques out of public funds”.
“Forecasts expected only 4,700 leases. In reality, more than 100,000 Australians have already taken it up. That is high uptake, immediate behaviour change, and proof of success,” he said.
“Most of those drivers are middle-income earners using EV subscriptions or novated leases. The enthusiasm shows the scheme is working exactly as intended, accelerating EV adoption in the mainstream market. In typical fashion, the cost of living savings have been ignored and the taxpayers are like cattle in the economic engine.”
In addition to the pressure to ditch the exemption, Chalmers said EV road user charging work with states and territories would also be a topic at the roundtable.
The Parliamentary Budget Office provided advice requested by Senator Tim Storer for a proposed road-user charge on EVs levied on a per-kilometre travelled basis, which would be calculated as a proportion of the fuel excise that was currently paid by a driver of a passenger vehicle that had average fuel usage for Australia.
Currently, NSW is the only state with plans to introduce a road-user charge from 1 July 2027 or when EVs made up 30 per cent of all new vehicle sales – whichever comes first.
Sam Mohammad, RSM Australia national head of tax services, said the potential federal road user charge for EVs could progress relatively quickly and was the one tax measure that could come to fruition in the current parliamentary term.
“While falling fuel excise revenue and constitutional restraints on state-based EV road user charges have accelerated discussions, the decision to proceed with a federal road user charge will likely come down to the satisfaction of key tax principles,” he said.
“Based on tax principles like simplicity, efficiency and fairness, the current proposal certainly stacks up, given it would equalise the funding of transport infrastructure to all drivers regardless of the vehicle they drive.”
“It’s been 15 years since the Tesla Roadster arrived in Australia and ushered in the first generation of modern EVs to hit roads across the country. As the popularity of EVs continues to grow, a federal road user charge would ensure the future sustainability of budget funding that could be distributed towards those roads.”
Balada noted that abandoning the FBT exemption was not the way to go, as the government moved to recover revenue via a road user charge, it was important to look at the bigger picture of driving growth, productivity and long-term savings.
“At that scale of uptake, carefully designed incentives can change behaviour fast and at scale. At a fiscal cost greater than Treasury projected, the pragmatic response is not to abandon the exemption completely.”
“A balanced response would be capping eligible vehicle prices, favouring business-use fleets where the emission advantage is greatest, or phasing the exemption down with a maturing market over time. Withdrawing the policy entirely at this point would be akin to abandoning the NBN partway through saving in the short term, but you entrench higher costs and slower Australia's competitive advantage long term.”
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