The Minns government in NSW has included $214 million in revenue from an electric vehicle road user charge to hold up its budget, despite doubts about the legality of the tax and whether it can collect the money.
Legal experts said the revenue line in this week’s budget could present a misleading view of the state’s finances because there was a high likelihood the law would be struck down as unconstitutional, as happened in Victoria in 2023.
The potential $214 million NSW budget black hole underscores the need for national road user charges, which Treasurer Jim Chalmers has flagged will be a priority for federal Labor in its second term after August’s productivity roundtable.
In 2021 NSW passed a road user charge for EVs and hybrids, to take effect from July 2027 or when EVs make up 30 per cent of all new vehicle sales, whichever is soonest.
But the High Court struck down a similar distance-based zero and low-emissions road user charge in Victoria, ruling in favour of two EV drivers in the landmark Vanderstock decision that the charge was an “excise” tax that only the Commonwealth could levy.
Tuesday’s NSW budget states the government expects to collect $73 million from its road user charge in 2027-28, up from $54 million in the half-yearly review, and a further $141 million in 2028-29.
The upgrade in revenue “largely reflects a change in the forecast to accurately reflect the annual indexation” of the rate, budget papers say. The current proposed rate for 2024-25 is 2.906¢ per kilometre for an EV and 2.324¢ per kilometre for a plug-in hybrid.
Professor Anthony Gray, the associate dean of research at Bond University, said the NSW EV road user charge was materially similar to the Victorian charge that was struck down by the High Court.
“As such there is a high likelihood of a successful constitutional challenge to the NSW version,” Gray said.
“I generally do not think it would be wise to include within a budget revenue streams calculated on the basis of impositions that are likely to be held unconstitutional and invalid if-when challenged.”
Gray noted there were “no details” about the Commonwealth’s proposed alternative, nor of any potential effort by NSW to redraft its own law which would “alter the likely revenue”. Inclusion in the budget therefore “may present a misleading view of the state’s finances”, he said.
Melbourne Law School associate professor Lulu Weis agreed it would be “very difficult to see how imposing such a charge could be constitutionally valid following Vanderstock given the breadth of the High Court’s ruling in that case” because distance-based charges “could only be enacted by the Commonwealth”.
Weis noted that Chalmers had indicated a road user charge “will be a priority for the current government” and the enactment of a Commonwealth tax “would render any road user charge enacted by NSW invalid” because federal law trumps state law in the case of inconsistency.
Assessing effect of decision
NSW Treasury acknowledges the High Court decision. “The NSW government is working to assess the potential implications of the decision for NSW’s electric vehicle road user charge,” it said.
In a pre-budget interview with The Australian Financial Review, NSW Treasurer Daniel Mookhey said NSW would “work constructively” with the Commonwealth on national road user charging.
He argued that NSW’s starting position on distributing revenue was different to other states because it had “notionally” already addressed declining fuel excise by introducing its EV charge.
“The Vanderstock decision was obviously about a Victorian tax,” he said. “I’m not going to predict or comment on any prospects [or] whether or not there [are] any questions around the validity of the NSW law … at this point NSW has got a law on its books, it’s not been challenged in the courts yet.”
Extracted in full from: https://www.afr.com/policy/tax-and-super/nsw-is-counting-on-214m-in-ev-tax-it-may-not-be-legal-20250627-p5marp
