The High Court has overruled Victoria's road user charge, but could EV drivers still be taxed?

Victoria's electric vehicle levy is set to be scrapped – but experts say EV owners could still be taxed in the future.

The controversial road user charge — where EV drivers paid the state around two cents a kilometre — was challenged in the High Court by two Victorian electric car owners who argued the tax was not legal as it was an excise that only a federal government can impose.

On Wednesday the High Court ruled in the drivers' favour.

The Victorian government said it was disappointed with the outcome but accepted the court's ruling.

There are now questions about whether Victorians charged the levy will be refunded — but the ruling has bigger implications for all drivers.

One of the plaintiffs in the case Chris Vanderstock said he hoped he would receive a refund for the levy.

"I've paid more than $1300 for this tax over the past two years and it's now been found to be invalid," he told 7.30.

Mr Vanderstock said his lawyers are now combing through the legal findings to determine if Victorian EV drivers will be eligible for a refund as a result of the High Court ruling.

EV levies called into question

The High Court challenge was seen as a test case that would determine how EVs would be taxed in all states into the future and, importantly, who could collect the future revenue which is projected to grow as the sale of EVs increase.

Victoria is the only state to tax EV drivers but others had planned similar levies that have now been called into question after Wednesday's ruling.

The Victorian government introduced the levy in 2021 as a way to raise revenue for roads and EV charging infrastructure.

"At the moment, the Commonwealth controls the revenue from driving because it is responsible for the fuel excise, but over the longer term that will decline, as cars become more and more fuel efficient and as people gradually switch to electric vehicles," transport expert Marion Terrill told 7.30.

It was the potential of this growing revenue source from the rise of electric cars that caught the attention of the state, territory and federal governments who all eventually joined the High Court stoush.

The states and territories backed the Victorian government in the legal challenge, while the federal government gave support to the plaintiff's position on the validity of the tax.

'The worst EV policy in the world'

While Victoria will have to scrap its EV road user charge, which opponents labelled "the worst EV policy in the world", Ms Terrill said EV users could still be taxed in the future either by their state or federal government.

"It doesn't stop Victoria and the other states from introducing smarter charges for driving. And I think that they probably should do that," Ms Terrill said.

"Beyond the legal arguments is the question of whether this type of charge is fair or not and whether it's a good idea to have a charge on drivers of electric vehicles.

"The way that the drivers have been arguing this is that they should be encouraged rather than penalised for their choice of car …That's all true, but electric vehicles have got downsides as well.

"Any car, whether it's petrol, diesel, or electric, does create the cost of congestion and accidents and also contributes to the ever-increasing demand for roads and parking and so I think all drivers need to be contributing to the costs that they impose on others.

"In fact, we've done some analysis that shows that if electric vehicles were to pay their way on road construction and maintenance they'd be paying about four cents per kilometre which is well above the charge that Victoria had of 2.8 cents per kilometre."

While the Victorian levy that was scrapped was based on the distance a car drove, Ms Terrill believed a better approach would be based on the location of roads driven, such as enforcing higher charges for driving a car in a busy CBD street at rush hour compared to a quiet suburban street during the day.

"I think in the CBDs of the capital cities, in peak periods, it does make sense to impose a charge for people to enter the crowded zone, the congested zone," she said.

Ms Terrill advocates for "congestion pricing", which is used in cities like London and Singapore to help resolve city gridlock.

"Because EVs are cheap to drive we must expect an uptick in driving as people switch to them and what that means, without some sort of action, is it really is a recipe for gridlock," she said.

Is one scheme better than eight?

Another approach would be a charge by the federal government that was uniform across states and the same for all cars, whether powered by electricity or fuel.

The Electric Vehicle Council – the peak body for EV owners – is in favour of this approach partly, as its CEO Behyad Jafari said, because "it's better to have one scheme than have eight state and territory schemes".

Ms Terrill said while the constitution prohibited the federal government from implementing a congestion charge, it could implement a distance-based charge but that would present practical challenges.

"The federal government could impose a charge per kilometre on EVs, I think that's the implication of the high court's decision," she said. 

"But the difficulty is that the federal government doesn't have a way of knowing who's got an EV because the state governments are the ones that run vehicle registration.

'Road funding reform'

The EV Council argued the High Court ruling is an opportunity to overhaul the way drivers are taxed and the way roads are funded across the country.

"I think every sensible driver knows that we have to pay for things and that they should pay their fair share. But really, this should be a conversation about road funding reform," Mr Jafari told 7.30

Mr Jafari sees eye-to-eye with Ms Terrill on the need to distinguish charges between locations with any new road user tax or levy.

"There are some very simple fairness considerations: why is somebody driving down a dirt track in country New South Wales paying more in fuel excise because they travel longer distances than somebody driving shorter distances in Sydney's CBD where we're paying a lot more for road building and road upkeep?" he said.

"Governments raise money in order to provide services.

"We need to be talking about those services first and then discovering what revenue we need to be able to provide that"

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