It’s good the High Court overturned Victoria’s questionable EV tax. But there’s a sting in the tail

For anyone concerned with the need to decarbonise transport – or with sound economic policy – yesterday’s High Court ruling might seem like good news.

The court ruled Victoria’s tax on road use for zero- and low-emissions vehicles was unconstitutional, after two electric car drivers challenged the state’s ability to impose excise-type levies.

But given the High Court’s previous track record on constitutional interpretation, there’s a grave danger this decision will be extended to rule out any kind of road user charge. It threatens many other state levies too, from luxury cars to mining royalties.

Why was Victoria’s tax so bad?
EV drivers don’t buy petrol or diesel, which means they avoid the fuel excise that other drivers pay – and which pays for road maintenance. That’s why Victoria introduced its EV road user charge, which cost owners about two cents per kilometre driven.

Despite this plausible-sounding rationale, the road user charge was terrible policy, both environmentally and economically. A tax specific to electric vehicles could only slow their adoption, at a time when early adopters need to be encouraged.

And in economic terms, the policy rested on a misunderstanding of economics. The tax was supposed to address a “distortion” in the incentives generated when electric vehicle drivers paid less to use the roads than internal combustion engine vehicle drivers.

But the government’s reasoning didn’t take into account a central principle of economic policy – the theory of the second-best.

Read more: Victoria's electric vehicle tax and the theory of the second-best

Drivers who fill up with petrol, gas or diesel don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs.

So by taxing EVs, you make traditional car drivers better off – and that leads to worse social outcomes overall.

a red and blue car in a showroom
Taxes can change what we buy – another petrol car, or your first electric one? Shutterstock
Three years ago, I finished a critique of the policy on a positive note, suggesting it opened the door to broader road user charges based on kilometres travelled.

Sadly, it seems my assessment was premature.

In recent decades, the High Court has been taking ever more expansive interpretations of Section 90 of the Constitution, which prevents state governments from “imposing duties of customs or of excise”.

In the first decades after federation, “excise” was interpreted to refer to taxes levied on goods manufactured in Australia, just as customs duties are levied on imported goods.

Over many years and many High Court decisions, the concept was broadened to include any tax or fee that increases the costs of goods for consumers.

The last remaining obstacle was the “Tobacco Tax” decision in 1974, which excluded consumption taxes from Section 90’s scope.

But that, too, is now gone. Despite some scathing dissenting For anyone concerned with the need to decarbonise transport – or with sound economic policy – yesterday’s High Court ruling might seem like good news.

The court ruled Victoria’s tax on road use for zero- and low-emissions vehicles was unconstitutional, after two electric car drivers challenged the state’s ability to impose excise-type levies.

But given the High Court’s previous track record on constitutional interpretation, there’s a grave danger this decision will be extended to rule out any kind of road user charge. It threatens many other state levies too, from luxury cars to mining royalties.

Why was Victoria’s tax so bad?
EV drivers don’t buy petrol or diesel, which means they avoid the fuel excise that other drivers pay – and which pays for road maintenance. That’s why Victoria introduced its EV road user charge, which cost owners about two cents per kilometre driven.

Despite this plausible-sounding rationale, the road user charge was terrible policy, both environmentally and economically. A tax specific to electric vehicles could only slow their adoption, at a time when early adopters need to be encouraged.

And in economic terms, the policy rested on a misunderstanding of economics. The tax was supposed to address a “distortion” in the incentives generated when electric vehicle drivers paid less to use the roads than internal combustion engine vehicle drivers.

But the government’s reasoning didn’t take into account a central principle of economic policy – the theory of the second-best.

Read more: Victoria's electric vehicle tax and the theory of the second-best

Drivers who fill up with petrol, gas or diesel don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs.

So by taxing EVs, you make traditional car drivers better off – and that leads to worse social outcomes overall.

a red and blue car in a showroom
Taxes can change what we buy – another petrol car, or your first electric one? Shutterstock
Three years ago, I finished a critique of the policy on a positive note, suggesting it opened the door to broader road user charges based on kilometres travelled.

Sadly, it seems my assessment was premature.

In recent decades, the High Court has been taking ever more expansive interpretations of Section 90 of the Constitution, which prevents state governments from “imposing duties of customs or of excise”.

In the first decades after federation, “excise” was interpreted to refer to taxes levied on goods manufactured in Australia, just as customs duties are levied on imported goods.

Over many years and many High Court decisions, the concept was broadened to include any tax or fee that increases the costs of goods for consumers.

The last remaining obstacle was the “Tobacco Tax” decision in 1974, which excluded consumption taxes from Section 90’s scope.

But that, too, is now goneFor anyone concerned with the need to decarbonise transport – or with sound economic policy – yesterday’s High Court ruling might seem like good news.

The court ruled Victoria’s tax on road use for zero- and low-emissions vehicles was unconstitutional, after two electric car drivers challenged the state’s ability to impose excise-type levies.

But given the High Court’s previous track record on constitutional interpretation, there’s a grave danger this decision will be extended to rule out any kind of road user charge. It threatens many other state levies too, from luxury cars to mining royalties.

Why was Victoria’s tax so bad?
EV drivers don’t buy petrol or diesel, which means they avoid the fuel excise that other drivers pay – and which pays for road maintenance. That’s why Victoria introduced its EV road user charge, which cost owners about two cents per kilometre driven.

Despite this plausible-sounding rationale, the road user charge was terrible policy, both environmentally and economically. A tax specific to electric vehicles could only slow their adoption, at a time when early adopters need to be encouraged.

And in economic terms, the policy rested on a misunderstanding of economics. The tax was supposed to address a “distortion” in the incentives generated when electric vehicle drivers paid less to use the roads than internal combustion engine vehicle drivers.

But the government’s reasoning didn’t take into account a central principle of economic policy – the theory of the second-best.

Read more: Victoria's electric vehicle tax and the theory of the second-best

Drivers who fill up with petrol, gas or diesel don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs.

So by taxing EVs, you make traditional car drivers better off – and that leads to worse social outcomes overall.

a red and blue car in a showroom
Taxes can change what we buy – another petrol car, or your first electric one? Shutterstock
Three years ago, I finished a critique of the policy on a positive note, suggesting it opened the door to broader road user charges based on kilometres travelled.

Sadly, it seems my assessment was premature.

In recent decades, the High Court has been taking ever more expansive interpretations of Section 90 of the Constitution, which prevents state governments from “imposing duties of customs or of excise”.

In the first decades after federation, “excise” was interpreted to refer to taxes levied on goods manufactured in Australia, just as customs duties are levied on imported goods.

Over many years and many High Court decisions, the concept was broadened to include any tax or fee that increases the costs of goods for consumers.

The last remaining obstacle was the “Tobacco Tax” decision in 1974, which excluded consumption taxes from Section 90’s scope.

But that, too, is now goneFor anyone concerned with the need to decarbonise transport – or with sound economic policy – yesterday’s High Court ruling might seem like good news.

The court ruled Victoria’s tax on road use for zero- and low-emissions vehicles was unconstitutional, after two electric car drivers challenged the state’s ability to impose excise-type levies.

But given the High Court’s previous track record on constitutional interpretation, there’s a grave danger this decision will be extended to rule out any kind of road user charge. It threatens many other state levies too, from luxury cars to mining royalties.

Why was Victoria’s tax so bad?
EV drivers don’t buy petrol or diesel, which means they avoid the fuel excise that other drivers pay – and which pays for road maintenance. That’s why Victoria introduced its EV road user charge, which cost owners about two cents per kilometre driven.

Despite this plausible-sounding rationale, the road user charge was terrible policy, both environmentally and economically. A tax specific to electric vehicles could only slow their adoption, at a time when early adopters need to be encouraged.

And in economic terms, the policy rested on a misunderstanding of economics. The tax was supposed to address a “distortion” in the incentives generated when electric vehicle drivers paid less to use the roads than internal combustion engine vehicle drivers.

But the government’s reasoning didn’t take into account a central principle of economic policy – the theory of the second-best.

Read more: Victoria's electric vehicle tax and the theory of the second-best

Drivers who fill up with petrol, gas or diesel don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs.

So by taxing EVs, you make traditional car drivers better off – and that leads to worse social outcomes overall.

a red and blue car in a showroom
Taxes can change what we buy – another petrol car, or your first electric one? Shutterstock
Three years ago, I finished a critique of the policy on a positive note, suggesting it opened the door to broader road user charges based on kilometres travelled.

Sadly, it seems my assessment was premature.

In recent decades, the High Court has been taking ever more expansive interpretations of Section 90 of the Constitution, which prevents state governments from “imposing duties of customs or of excise”.

In the first decades after federation, “excise” was interpreted to refer to taxes levied on goods manufactured in Australia, just as customs duties are levied on imported goods.

Over many years and many High Court decisions, the concept was broadened to include any tax or fee that increases the costs of goods for consumers.

The last remaining obstacle was the “Tobacco Tax” decision in 1974, which excluded consumption taxes from Section 90’s scope.

But that, too, is now goneFor anyone concerned with the need to decarbonise transport – or with sound economic policy – yesterday’s High Court ruling might seem like good news.

The court ruled Victoria’s tax on road use for zero- and low-emissions vehicles was unconstitutional, after two electric car drivers challenged the state’s ability to impose excise-type levies.

But given the High Court’s previous track record on constitutional interpretation, there’s a grave danger this decision will be extended to rule out any kind of road user charge. It threatens many other state levies too, from luxury cars to mining royalties.

Why was Victoria’s tax so bad?
EV drivers don’t buy petrol or diesel, which means they avoid the fuel excise that other drivers pay – and which pays for road maintenance. That’s why Victoria introduced its EV road user charge, which cost owners about two cents per kilometre driven.

Despite this plausible-sounding rationale, the road user charge was terrible policy, both environmentally and economically. A tax specific to electric vehicles could only slow their adoption, at a time when early adopters need to be encouraged.

And in economic terms, the policy rested on a misunderstanding of economics. The tax was supposed to address a “distortion” in the incentives generated when electric vehicle drivers paid less to use the roads than internal combustion engine vehicle drivers.

But the government’s reasoning didn’t take into account a central principle of economic policy – the theory of the second-best.

Read more: Victoria's electric vehicle tax and the theory of the second-best

Drivers who fill up with petrol, gas or diesel don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs.

So by taxing EVs, you make traditional car drivers better off – and that leads to worse social outcomes overall.

a red and blue car in a showroom
Taxes can change what we buy – another petrol car, or your first electric one? Shutterstock
Three years ago, I finished a critique of the policy on a positive note, suggesting it opened the door to broader road user charges based on kilometres travelled.

Sadly, it seems my assessment was premature.

In recent decades, the High Court has been taking ever more expansive interpretations of Section 90 of the Constitution, which prevents state governments from “imposing duties of customs or of excise”.

In the first decades after federation, “excise” was interpreted to refer to taxes levied on goods manufactured in Australia, just as customs duties are levied on imported goods.

Over many years and many High Court decisions, the concept was broadened to include any tax or fee that increases the costs of goods for consumers.

The last remaining obstacle was the “Tobacco Tax” decision in 1974, which excluded consumption taxes from Section 90’s scope.

But that, too, is now goneFor anyone concerned with the need to decarbonise transport – or with sound economic policy – yesterday’s High Court ruling might seem like good news.

The court ruled Victoria’s tax on road use for zero- and low-emissions vehicles was unconstitutional, after two electric car drivers challenged the state’s ability to impose excise-type levies.

But given the High Court’s previous track record on constitutional interpretation, there’s a grave danger this decision will be extended to rule out any kind of road user charge. It threatens many other state levies too, from luxury cars to mining royalties.

Why was Victoria’s tax so bad?
EV drivers don’t buy petrol or diesel, which means they avoid the fuel excise that other drivers pay – and which pays for road maintenance. That’s why Victoria introduced its EV road user charge, which cost owners about two cents per kilometre driven.

Despite this plausible-sounding rationale, the road user charge was terrible policy, both environmentally and economically. A tax specific to electric vehicles could only slow their adoption, at a time when early adopters need to be encouraged.

And in economic terms, the policy rested on a misunderstanding of economics. The tax was supposed to address a “distortion” in the incentives generated when electric vehicle drivers paid less to use the roads than internal combustion engine vehicle drivers.

But the government’s reasoning didn’t take into account a central principle of economic policy – the theory of the second-best.

Read more: Victoria's electric vehicle tax and the theory of the second-best

Drivers who fill up with petrol, gas or diesel don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs.

So by taxing EVs, you make traditional car drivers better off – and that leads to worse social outcomes overall.

a red and blue car in a showroom
Taxes can change what we buy – another petrol car, or your first electric one? Shutterstock
Three years ago, I finished a critique of the policy on a positive note, suggesting it opened the door to broader road user charges based on kilometres travelled.

Sadly, it seems my assessment was premature.

In recent decades, the High Court has been taking ever more expansive interpretations of Section 90 of the Constitution, which prevents state governments from “imposing duties of customs or of excise”.

In the first decades after federation, “excise” was interpreted to refer to taxes levied on goods manufactured in Australia, just as customs duties are levied on imported goods.

Over many years and many High Court decisions, the concept was broadened to include any tax or fee that increases the costs of goods for consumers.

The last remaining obstacle was the “Tobacco Tax” decision in 1974, which excluded consumption taxes from Section 90’s scope.

But that, too, is now goneFor anyone concerned with the need to decarbonise transport – or with sound economic policy – yesterday’s High Court ruling might seem like good news.

The court ruled Victoria’s tax on road use for zero- and low-emissions vehicles was unconstitutional, after two electric car drivers challenged the state’s ability to impose excise-type levies.

But given the High Court’s previous track record on constitutional interpretation, there’s a grave danger this decision will be extended to rule out any kind of road user charge. It threatens many other state levies too, from luxury cars to mining royalties.

Why was Victoria’s tax so bad?
EV drivers don’t buy petrol or diesel, which means they avoid the fuel excise that other drivers pay – and which pays for road maintenance. That’s why Victoria introduced its EV road user charge, which cost owners about two cents per kilometre driven.

Despite this plausible-sounding rationale, the road user charge was terrible policy, both environmentally and economically. A tax specific to electric vehicles could only slow their adoption, at a time when early adopters need to be encouraged.

And in economic terms, the policy rested on a misunderstanding of economics. The tax was supposed to address a “distortion” in the incentives generated when electric vehicle drivers paid less to use the roads than internal combustion engine vehicle drivers.

But the government’s reasoning didn’t take into account a central principle of economic policy – the theory of the second-best.

Read more: Victoria's electric vehicle tax and the theory of the second-best

Drivers who fill up with petrol, gas or diesel don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs.

So by taxing EVs, you make traditional car drivers better off – and that leads to worse social outcomes overall.

a red and blue car in a showroom
Taxes can change what we buy – another petrol car, or your first electric one? Shutterstock
Three years ago, I finished a critique of the policy on a positive note, suggesting it opened the door to broader road user charges based on kilometres travelled.

Sadly, it seems my assessment was premature.

In recent decades, the High Court has been taking ever more expansive interpretations of Section 90 of the Constitution, which prevents state governments from “imposing duties of customs or of excise”.

In the first decades after federation, “excise” was interpreted to refer to taxes levied on goods manufactured in Australia, just as customs duties are levied on imported goods.

Over many years and many High Court decisions, the concept was broadened to include any tax or fee that increases the costs of goods for consumers.

The last remaining obstacle was the “Tobacco Tax” decision in 1974, which excluded consumption taxes from Section 90’s scope.

But that, too, is now goneFor anyone concerned with the need to decarbonise transport – or with sound economic policy – yesterday’s High Court ruling might seem like good news.

The court ruled Victoria’s tax on road use for zero- and low-emissions vehicles was unconstitutional, after two electric car drivers challenged the state’s ability to impose excise-type levies.

But given the High Court’s previous track record on constitutional interpretation, there’s a grave danger this decision will be extended to rule out any kind of road user charge. It threatens many other state levies too, from luxury cars to mining royalties.

Why was Victoria’s tax so bad?
EV drivers don’t buy petrol or diesel, which means they avoid the fuel excise that other drivers pay – and which pays for road maintenance. That’s why Victoria introduced its EV road user charge, which cost owners about two cents per kilometre driven.

Despite this plausible-sounding rationale, the road user charge was terrible policy, both environmentally and economically. A tax specific to electric vehicles could only slow their adoption, at a time when early adopters need to be encouraged.

And in economic terms, the policy rested on a misunderstanding of economics. The tax was supposed to address a “distortion” in the incentives generated when electric vehicle drivers paid less to use the roads than internal combustion engine vehicle drivers.

But the government’s reasoning didn’t take into account a central principle of economic policy – the theory of the second-best.

Read more: Victoria's electric vehicle tax and the theory of the second-best

Drivers who fill up with petrol, gas or diesel don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs.

So by taxing EVs, you make traditional car drivers better off – and that leads to worse social outcomes overall.

a red and blue car in a showroom
Taxes can change what we buy – another petrol car, or your first electric one? Shutterstock
Three years ago, I finished a critique of the policy on a positive note, suggesting it opened the door to broader road user charges based on kilometres travelled.

Sadly, it seems my assessment was premature.

In recent decades, the High Court has been taking ever more expansive interpretations of Section 90 of the Constitution, which prevents state governments from “imposing duties of customs or of excise”.

In the first decades after federation, “excise” was interpreted to refer to taxes levied on goods manufactured in Australia, just as customs duties are levied on imported goods.

Over many years and many High Court decisions, the concept was broadened to include any tax or fee that increases the costs of goods for consumers.

The last remaining obstacle was the “Tobacco Tax” decision in 1974, which excluded consumption taxes from Section 90’s scope.

But that, too, is now goneFor anyone concerned with the need to decarbonise transport – or with sound economic policy – yesterday’s High Court ruling might seem like good news.

The court ruled Victoria’s tax on road use for zero- and low-emissions vehicles was unconstitutional, after two electric car drivers challenged the state’s ability to impose excise-type levies.

But given the High Court’s previous track record on constitutional interpretation, there’s a grave danger this decision will be extended to rule out any kind of road user charge. It threatens many other state levies too, from luxury cars to mining royalties.

Why was Victoria’s tax so bad?
EV drivers don’t buy petrol or diesel, which means they avoid the fuel excise that other drivers pay – and which pays for road maintenance. That’s why Victoria introduced its EV road user charge, which cost owners about two cents per kilometre driven.

Despite this plausible-sounding rationale, the road user charge was terrible policy, both environmentally and economically. A tax specific to electric vehicles could only slow their adoption, at a time when early adopters need to be encouraged.

And in economic terms, the policy rested on a misunderstanding of economics. The tax was supposed to address a “distortion” in the incentives generated when electric vehicle drivers paid less to use the roads than internal combustion engine vehicle drivers.

But the government’s reasoning didn’t take into account a central principle of economic policy – the theory of the second-best.

Read more: Victoria's electric vehicle tax and the theory of the second-best

Drivers who fill up with petrol, gas or diesel don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs.

So by taxing EVs, you make traditional car drivers better off – and that leads to worse social outcomes overall.

a red and blue car in a showroom
Taxes can change what we buy – another petrol car, or your first electric one? Shutterstock
Three years ago, I finished a critique of the policy on a positive note, suggesting it opened the door to broader road user charges based on kilometres travelled.

Sadly, it seems my assessment was premature.

In recent decades, the High Court has been taking ever more expansive interpretations of Section 90 of the Constitution, which prevents state governments from “imposing duties of customs or of excise”.

In the first decades after federation, “excise” was interpreted to refer to taxes levied on goods manufactured in Australia, just as customs duties are levied on imported goods.

Over many years and many High Court decisions, the concept was broadened to include any tax or fee that increases the costs of goods for consumers.

The last remaining obstacle was the “Tobacco Tax” decision in 1974, which excluded consumption taxes from Section 90’s scope.

But that, too, is now goneFor anyone concerned with the need to decarbonise transport – or with sound economic policy – yesterday’s High Court ruling might seem like good news.

The court ruled Victoria’s tax on road use for zero- and low-emissions vehicles was unconstitutional, after two electric car drivers challenged the state’s ability to impose excise-type levies.

But given the High Court’s previous track record on constitutional interpretation, there’s a grave danger this decision will be extended to rule out any kind of road user charge. It threatens many other state levies too, from luxury cars to mining royalties.

Why was Victoria’s tax so bad?
EV drivers don’t buy petrol or diesel, which means they avoid the fuel excise that other drivers pay – and which pays for road maintenance. That’s why Victoria introduced its EV road user charge, which cost owners about two cents per kilometre driven.

Despite this plausible-sounding rationale, the road user charge was terrible policy, both environmentally and economically. A tax specific to electric vehicles could only slow their adoption, at a time when early adopters need to be encouraged.

And in economic terms, the policy rested on a misunderstanding of economics. The tax was supposed to address a “distortion” in the incentives generated when electric vehicle drivers paid less to use the roads than internal combustion engine vehicle drivers.

But the government’s reasoning didn’t take into account a central principle of economic policy – the theory of the second-best.

Read more: Victoria's electric vehicle tax and the theory of the second-best

Drivers who fill up with petrol, gas or diesel don’t bear the social and environmental costs of their choices in the form of carbon dioxide and other pollutants emitted, or the cost of the damage done to our lungs.

So by taxing EVs, you make traditional car drivers better off – and that leads to worse social outcomes overall.

a red and blue car in a showroom
Taxes can change what we buy – another petrol car, or your first electric one? Shutterstock
Three years ago, I finished a critique of the policy on a positive note, suggesting it opened the door to broader road user charges based on kilometres travelled.

Sadly, it seems my assessment was premature.

In recent decades, the High Court has been taking ever more expansive interpretations of Section 90 of the Constitution, which prevents state governments from “imposing duties of customs or of excise”.

In the first decades after federation, “excise” was interpreted to refer to taxes levied on goods manufactured in Australia, just as customs duties are levied on imported goods.

Over many years and many High Court decisions, the concept was broadened to include any tax or fee that increases the costs of goods for consumers.

The last remaining obstacle was the “Tobacco Tax” decision in 1974, which excluded consumption taxes from Section 90’s scope.