It’s good news that, according to the Brisbane Times, Queensland Transport Minister Mark Bailey has ruled out a special Electric Vehicle tax (at least for now). You may recall I reported on the Australia Institute’s campaign to stop state-levied EV taxes in my Wednesday post, which generated a wide range of thought provoking responses.

For instance, former state Treasury senior official Adrian Noon made a highly insightful comment regarding the context in which southern states are implementing tax policy changes, including EV taxes. Adrian has a lot of experience in Queensland public finance. In the first half of the 2000s, he was the chief economic adviser to Beattie Government Deputy Premier-Treasurer Terry Mackenroth. Here’s part of Adrian’s comment on my post on Linkedin:

This gets back to Commonwealth-State financial relations and the fact that the fuel excise at present is not hypothecated. The fuel excise in the next 20 years will be a dying tax as EVs & hydrogen vehicles (for heavy haul, longer distance uses) replace them.

The southern States are just being rat cunning – they are getting in & staking out the new tax base now before the Feds get in on the idea. I disagree with you – Qld should do exactly the same next week! 

Just like with NSW’s cheeky/dumb (depending on your view) play on stamp duty & land tax, this is just about setting the stage for the inevitable major reset of taxes in this country & Commonwealth-State financial relations that must happen sometime in the next few years, especially given the GST has turned out not to be the growth tax Howard sold it as due to its base destruction and changes in people’s spending preferences.

Adrian is correct that the GST has not lived up to the expectations of state and territory governments. For example, in early September, The Australian reported The GST is costing the government billions:

The declining share of GST revenue relative to the size of the economy over the past 20 years is costing the government $9bn in lost annual tax revenue – a shortfall which, absent reform, could blow out to $24bn by the end of the decade, the parliament’s independent budget watchdog has found.

A new analysis by the Parliamentary Budget Office found that despite being originally promoted as a “growth tax”, the 10 per cent GST has not kept up with economic growth over the last twenty years.

Instead, the GST tax take relative to total GDP has declined from 4 per cent in 2003-04, to 3.3 per cent in 2018-19.

We see this impact in the trend decline in GST revenue grants to the Queensland Government as a percentage of Gross State Product (Figure 1). Note the cyclical volatility in the time series is largely due to changes in the “relativity” calculated by the Commonwealth Grants Commission, which uses a complicated formula incorporating coal prices (a major influence on Queensland’s relativity) and dozens of other data inputs.

On the reset of federal-financial relations, I acknowledge this needs to occur. But I don’t think a special EV tax should be part of that reset, for the reasons I discussed in my Wednesday post. One possible solution would see the states and territories take a share of Commonwealth income tax, with the possibility of varying the state components of tax rates, along the lines of what then PM Malcolm Turnbull proposed in 2016, a proposal I supported in principle on ABC Brisbane radio at the time (see Premier’s 2016 Lodge dinner remark to Turnbull highlighted Vertical Fiscal Imbalance problem).

Finally, I should clarify that I would support a more rational system of road user charging, and possibly congestion charging, in preference to our current policy settings. That system would need to take into account:

• the small amount of damage to roads caused by passenger vehicles compared with heavy vehicles, and
• the reduction in greenhouse gas emissions from switching from petrol-powered vehicles to EVs.

On GHG emissions of EVs, it’s intuitive that EVs would have lower emissions, even if they rely on Queensland’s current electricity grid for charging, given the superior efficiency of electric motors. According to the Queensland Department of Transport and Main Roads (Benefits to Queenslander of EVs):

The average EV produces around 30% less greenhouse gas emissions compared to a conventional fossil fuel vehicle when using Queensland’s current electricity grid mix.

In my view, Minister Bailey is right not to slow down the take-up of EVs by levying a special tax on them.

Please feel free to comment below. Alternatively you can email comments, suggestions, or hot tips to contact@queenslandeconomywatch.com