Next week’s budget to reduce electric vehicle FBT concession

Written by: Michelle Grattan, Professorial Fellow, University of Canberra

Next week’s budget will contain cutbacks to the concessional treatment of electric vehicles (EVs) that will save the government $1.7 billion over the budget period.

Announcing the changes to the Fringe Benefit Tax (FBT) exemption for EVs, Treasurer Jim Chalmers and Energy Minister Chris Bowen said the new rules would encourage manufacturers to offer EVs to the Australian market that were more affordable and cheaper to run.

The phased-in reductions will move to a permanent 25% discount of FBT for these cars. They won’t affect existing leases.

Under the changes:

in phase one, the existing discount will continue until the end of March next year. Under this discount there is no fringe benefit tax on eligible EVs.
in the second phase, between April 1 2027 and April 1 2029, the full FBT discount will apply only for EVs costing up to $75,000. During this phase, vehicles costing more than $75,000 but below the luxury car tax threshold will receive a 25% discount on their payable FBT.
from April 1 2029, all EVs below the luxury tax threshold will receive the 25% discount on FBT.

Eligible vehicles will continue to be exempt from import tariffs.

Chalmers and Bowen said in a statement: “The electric car market has rapidly matured since we came to government, and these changes will ensure our tax settings are still suitable”.

In March nearly 23% of new cars were electric or plug-in hybrids. This was up from less than 2% in May 2022. The ministers said the strongest uptake of the EV tax cut was happening primarily outside the inner cities.

They said the tax changes had been informed by the Electric Car Discount Review ^[1], released on Tuesday.

This review was required under legislation.

Chalmers on Monday said the budget “will begin a year of ambitious reform,” after last year’s election “began a year of delivery”.

“The budget will be calibrated for the conditions, but it will also still be consistent with our ambitions.”

Chalmers said that final elements of the budget “are still landing with a bit over a week to go”.

There were also very substantial elements already announced, including on defence, urgent care clinics, hospitals, aged care, the NDIS, the fuel tax cuts and other policies.

The treasurer said there were some major pressures on the budget coming from the Pharmaceutical Benefits Scheme, indexation, natural disasters and higher yields on debt.

He said in some years, revenue would be down because of slower growth and a higher exchange rate. In other years revenue would be up a bit less than had been speculated.

The budget would see a big emphasis on “budget sustainability, and that does mean more savings”. This would be “our most responsible budget yet.

"There will be more savings, there will be more spending restraint, we will save more than we spend and we will bank the upward revisions to revenue as well.”

“There will be more dollars in savings than dollars in revenue upgrades.

"There will also be more dollars in savings than dollars in tax reform.

"The point that I’m making there is that savings and spending restraint is doing a lot of the heavy lifting” in this budget.