Chartered Accountants Australia and New Zealand (CA ANZ) has made a submission to Treasury’s statutory review of the current electric vehicle (EV) FBT exemption.

CA ANZ strongly supports measures that boost EV uptake. However, the costs associated with the FBT exemption are rising steeply, and the benefits from the FBT exemption are distributed unevenly across income groups. Evidence from the Productivity Commission suggests that alternative delivery mechanisms may achieve the same environmental goals more economically. It is time to consider alternative policy delivery mechanisms to the FBT exemption.

Costs Are Climbing Faster Than Expected

When first introduced, the EV FBT exemption was forecast to cost around $20 million in 2022–23. But Treasury’s more recent Tax Expenditures and Insights Statements show a sharp upward revision. By 2028–29, the annual cost is now estimated at $2.8 billion—more than 100 times the original projection.

Treasury has attributed this surge to new data, updated uptake forecasts and methodological refinements. Regardless of the reasons, the scale of these revised estimates signals a rapidly growing fiscal impact.

The Productivity Commission has gone further, noting that the exemption is one of the costliest ways to reduce emissions, at between roughly $987 and $20,000 per tonne of carbon abated. By comparison, other government EV-support programs cost as little as $91 per tonne. These findings suggest that while the current exemption encourages EV uptake, it may not represent the best value for public money.

Equity Concerns: Higher‑Income Earners Benefit More

Another issue highlighted in the submission is equity. The FBT exemption is typically accessed through salary sacrificing arrangements involving novated leases. Because Australia’s income tax is progressive, higher‑income earners receive a larger tax benefit when they salary sacrifice the same amount as someone on a lower income.

For example, two individuals leasing the same EV at an annual pre‑tax cost of $20,000 will face very different after‑tax costs:

• A high‑income taxpayer (over $210,000) has an after‑tax cost of $10,600
• A middle‑income taxpayer ($65,000 to $190,000) pays $13,600
• A low‑income taxpayer (around $45,000 to $65,000) pays $16,800

In other words, the higher your income, the cheaper the EV becomes—despite all drivers leasing the same vehicle. Public data also indicates that nearly half of all novated EV leases have been taken out by individuals earning more than $150,000. This raises important questions about who is actually benefiting from this taxpayer‑funded incentive.

Alternative Ways to Support EV Uptake

Given rising costs and unequal benefits, CA ANZ encourages government to consider other tools that could deliver support more efficiently and more fairly. Potential options include:

1. State‑Linked Subsidy Supplements

The Commonwealth could top up state‑based subsidies with a fixed national amount. This would use existing state delivery mechanisms, make benefits consistent nationwide, and avoid skewing support toward higher-income earners.

2. Direct Federal Grants

Grants offer transparency and allow government to control total expenditure. They are also equitable: every eligible EV buyer receives the same amount. The trade‑off is that establishing a new grants program would require administrative investment.

3. A Tax Offset

Instead of exempting EVs from FBT, a flat‑rate tax offset could be provided to taxpayers. If refundable, this mechanism ensures the same benefit flows to all, including those with low or no taxable income. Income caps could further target support to lower‑ and middle‑income households.

All these alternatives would reduce the income‑based disparity inherent in the current exemption while allowing government to better manage the fiscal impact.