New Australian emissions standards and existing incentives for electric vehicles (EVs) overlap with each other and the latter should be scrapped, says the Productivity Commission.

In an interim report, the Australian Government’s independent research and advisory body has called for national Fringe Benefits Tax (FBT) exemptions for EVs to be axed, along with various state and territory incentives aimed at boosting EV uptake.

“Now that the Australian Government has implemented the New Vehicle Efficiency Standard, it should phase-out the exemption of electric vehicles from the Fringe Benefits Tax,” reads the interim report.

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Additionally, the report recommends, “state and territory governments should phase-out the exemption of electric vehicles from vehicle stamp duty and registration discounts”.

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“The EV purchase subsidies and the NVES overlap, as they both promote the purchase of low-emissions vehicles.

“EV tax discounts subsidise car buyers to opt for EVs, while the NVES is a broader-based policy that aims to increase purchases of low-emissions light vehicles, including both EVs and more fuel-efficient fossil fuel cars.”

The FBT exemption, set for review by mid-2027, applies to EVs first held or used after July 1, 2022 and which fall under the $91,387 Luxury Car Tax (LCT) threshold.

When it introduced the FBT exemption in 2022 under the Electric Car Discount Bill, the federal government said an employee receiving an eligible car worth $50,000 through a salary-sacrificing arrangement would save up to $4700 per year.

Until April 1, 2025, the FBT exemption was also available for eligible plug-in hybrid vehicles (PHEVs).

The NVES, in contrast, came into effect on January 1, 2025, with penalties commencing from July 1 for companies that exceed fleet CO2 emissions targets. These targets get more stringent each year.

The scheme is scheduled for a review in 2026.

While the Electric Vehicle Council has welcomed the Commission’s recommendations around introducing an emissions reduction incentive for heavy vehicles, it has warned its approach to emissions reductions in passenger cars, SUVs and light commercial vehicles is wrong-headed.

“The Commission’s report gets one thing right and one thing very wrong,” EVC CEO Julie Delvecchio said.

“It rightly recommends targeted support for zero-emissions trucks but then inexplicably turns around and proposes scrapping the very incentives that are finally helping everyday Australians afford an electric car.

“If we’re serious about net zero, we need to accelerate – not decelerate – the shift to clean transport. That means backing in the policies that are working.

“The Electric Car Discount has been a game-changer, especially for fleets and everyday workers who couldn’t previously afford to go electric. Removing it now would be like ripping out the charging cable halfway through the trip.

“Suggesting we end incentives just as Australia finally catches up to the rest of the developed world with an efficiency standard is short-sighted. We need both – they work together, not in isolation.

“Scrapping the discount on EVs now would pull the handbrake on electric vehicle adoption across Australia meaning more toxic pollution, poorer health outcomes, and a deeper addiction to foreign-owned fossil fuels. Right around the world, the countries that have achieved mainstream EV uptake have been supported by demand-side incentives.”

The National Automotive Leasing and Salary Packaging Association (NALSPA) echoed that view.

“Arguing that the EV Discount is no longer required because of the New Vehicle Efficiency Standard doesn’t stack up,” said NALSPA CEO Rohan Martin in a statement also released today.

“The NVES and the FBT exemption are complementary, not interchangeable. Globally, the most successful EV transitions have followed a clear roadmap: a mix of ‘carrot and stick’ policies, combining purchase incentives with strong emissions standards.”

In its interim report, the Commission has also argued the fuel excise – a tax per litre of fuel, which now sits at 50.8c per litre – could be seen as an emissions-reduction policy, rather than a source of revenue for road projects. In effect, this ‘hidden tax’ could be positioned more explicitly as a tax.

Many jurisdictions have already phased out EV subsidies, though some remain – for example, stamp duty discounts in the Northern Territory and ACT.

The Productivity Commission says it’s welcoming comment on its interim report up until September 15, 2025, after which it will prepare its final report.

“To achieve net zero at least cost, Australia needs consistent and comprehensive incentives to reduce emissions,” the body says in summarising its report.

“Governments should fill policy gaps, remove overlaps and ensure incentives are neutral towards which technologies can achieve reductions, and in which states and territories.”

The transport sector accounted for 19 per cent of gross emissions in 2023-24, making it the third highest-emitting sector. Within this, passenger cars were the largest emissions source.

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