A huge miscalculation of the cost of popular electric-car tax breaks – now forecast to cost $1.35 billion in lost tax revenue this financial year – has been exposed in new data.
Electric Cars
The Federal Government has grossly underestimated the cost of a popular tax break for electric and plug-in hybrid cars in novated leases – which is estimated to have found more than 100,000 takers in three years – new data reveals.
Treasury figures released in recent weeks estimate the tax revenue lost through the Fringe Benefits Tax (FBT) exemption for electric vehicles at $1.35 billion for the current 2025-26 financial year.
That is a staggering 18 times higher than the original forecast of $70 million, when the policy – now under a federal review – was proposed in the lead-up to the 2022 Federal Election.
But the latest government estimates have also brought a dramatic increase in cost projections – for current and prior years – over similar figures issued 12 months ago.
Data released at the end of 2024 forecast lost tax revenue of $60 million for the 2022-23 financial year, rising to $145 million for 2023-24, $220 million for 2024-25, and $335 million for 2025-26.
The most recent estimates have increased figures by between 300 and 390 per cent, to $290 million, $710 million, $1 billion, and $1.35 billion, respectively.
It means the combined loss in tax revenue from the FBT exemption between July 1, 2022 and June 30, 2028, is now forecast to be $7.3 billion, rather than $1.795 billion compared to late 2024 estimates, or $409 million ahead of the 2022 election.
Treasury admits the accuracy of its projections is “medium [to] low”.
The Federal Government claims it updates the estimates published in its release, the Tax Expenditures and Insights Statement, annually "to reflect the latest available data".
A line close to the end of the latest tax statement explains: "The large upward revision to ‘D33 Exemption for electric vehicles’ is driven by new data and updated projections, as well as methodological improvements."
Drive has contacted Treasury for more details on what "new data" it has obtained, and how "improvements" in its methodology can result in such a steep increase.
Interestingly, the forecasts decreased between the 2023-24 and 2024-25 statements due to "updated data on vehicle sales and prices and minor methodological improvements," Treasury said at the time.
It's despite the 2024-25 Tax Expenditures and Insights Statement being released in December 2024, amid a surge in plug-in hybrid sales in the lead-up to the end of the FBT exemption for these cars on April 1, 2025.
The popular tax break is available through a novated lease – where a vehicle is paid for from an employee's pre-tax income – and applies to electric and, previously, plug-in hybrid vehicles priced below the Luxury Car Tax (LCT) threshold, which is currently $91,387.
The National Automotive Leasing and Salary Packaging Association says it has been taken up by more than 100,000 people, but the Treasury instead estimates "almost 100,000 vehicles".
Leasing data has shown the policy's strongest uptake has been in "outer suburbs like Baulkham Hills in NSW, Werribee in Victoria, and Springfield in Queensland", according to Treasury.
But research by the leasing lobby group – as well as the Electric Vehicle Council – has found that, using data from one unnamed leasing company, 48.2 per cent of electric-car novated-lease customers earned more than $150,000, as reported by the AFR.
The FBT exemption was introduced alongside legislation that exempts electric vehicles under the LCT threshold – and not built in China, Japan, or another country with a Free Trade Agreement with Australia – from a 5 per cent import tariff.
In recent weeks, the Federal Government has announced a statutory review of the FBT and import tariff exemptions, acknowledging they have been successful, but with the aim of determining if they should continue.
"The take up of electric vehicles over the past few years has exceeded expectations," Treasurer Jim Chalmers said in a media statement in mid-December.
"... The electric car discount has made EVs cheaper to support early adoption and the next step is to review the policy as we committed to do when we legislated it."
The government's in-house Productivity Commission has recommended that the FBT exemption should be scrapped, as it "costs Australian taxpayers between about $1,000 and $20,000 per tonne of avoided CO2-e [CO2 equivalent]".
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Alex Misoyannis has been writing about cars since 2017, when he started his own website, Redline. He contributed for Drive in 2018, before joining CarAdvice in 2019, becoming a regular contributing journalist within the news team in 2020. Cars have played a central role throughout Alex’s life, from flicking through car magazines at a young age, to growing up around performance vehicles in a car-loving family. Highly Commended - Young Writer of the Year 2024 (Under 30) Rising Star Journalist, 2024 Winner Scoop of The Year - 2024 Winner
