The Australian Government is expected to raise an estimated AUD 1.94 billion (US$ 1.4 billion) over the next four years by reducing tax incentives available to electric vehicle buyers.

The additional revenue is intended to offset the cost of the Government's temporary three-month fuel excise reduction, which halves the tax applied to petrol and diesel and is projected to reduce government revenue by approximately AUD 2.9 billion. Last week, the Federal Government confirmed changes to the Fringe Benefits Tax (FBT) exemption available to eligible electric vehicles purchased through novated leases, under which employees acquire vehicles using pre-tax salary arrangements.

Since the policy was introduced in 2022, more than 100,000 Australians are estimated to have used the exemption. The scheme reduced the effective purchase cost of some electric vehicles by between 30 and 40%.

From April 1st, 2027, the existing full exemption will continue only for electric vehicles priced below AUD 75,000.

Vehicles priced between AUD 75,001 and the current low-emissions Luxury Car Tax threshold of AUD 91,387 will instead receive a 25% FBT discount. From April 1st, 2029, all newly purchased eligible electric vehicles below the low-emissions threshold will move to a permanent 25% FBT concession instead of a full exemption.

Although the Luxury Car Tax threshold for zero-emissions vehicles is expected to increase to AUD 120,000 once Australia finalises and legislates a free trade agreement with Europe, the FBT concession will remain linked to the lower AUD 91,387 "fuel-efficient vehicle" threshold.

Treasury forecasts indicate that the revised arrangements will generate AUD 1.94 billion in revenue by the end of the 2030-31 financial year, as the Government begins collecting 75% of applicable FBT revenue rather than waiving it entirely. The changes follow an increase in the cost of the scheme. When introduced in 2022, the exemption was expected to cost the Government AUD 260 million in forgone revenue over its first four years.

Updated figures show that the policy has reduced tax revenue by approximately AUD 3.35 billion, more than AUD 3 billion above the original estimate and almost 13 times higher than initially forecast. The scheme exceeded its original four-year projected cost within its first year of operation.

The Government stated that the policy contributed to increased electric vehicle adoption. Budget documents indicate that around one quarter of the approximately 330,000 plug-in hybrid and battery-electric vehicles sold between 2023 and 2025 would likely not have been purchased without the incentive.

The Government also stated that part of the higher-than-expected fiscal cost is offset by broader economic and environmental impacts. Treasury estimates include approximately AUD 460 million in emissions-related impacts, around AUD 500 million in healthcare savings linked to improved air quality, and roughly AUD 2 billion in reduced fuel expenditure by electric vehicle owners.

Under last year's Federal Budget projections, the scheme was previously expected to cost a further AUD 6.75 billion between the 2026-27 and 2028-29 financial years. The revised policy settings are expected to reverse that trend, shifting the programme from a cost centre to a net revenue contributor by the end of the decade.

The first stage of the changes in 2027 is expected to affect around 20 electric vehicle models currently priced above AUD 75,000 but below the low-emissions threshold. These include vehicles such as the BMW iX1, Volvo EX40 and Tesla Model 3 Performance.

Most mainstream electric vehicles sold in Australia remain priced below the new AUD 75,000 threshold and will continue to qualify for the full exemption until April 2029. Meanwhile, fully electric vehicles priced above AUD 91,387, even if exempt from Luxury Car Tax in the future, will no longer qualify for any FBT concession under the revised framework.