Victoria’s electric vehicle tax has been struck down by the high court in a landmark case likely to bar all state-level road user charges and expose other state levies to challenge.
On Wednesday, a majority of the high court ruled in favour of two electric car drivers who argued that the imposition of a tax by the Victorian government per kilometre driven was unconstitutional because the states do not have the power to impose such excise taxes on consumption.
Every state and territory had intervened in the case on Victoria’s side.
The decision will likely prevent New South Wales and Western Australia from proceeding with plans to introduce road-user charged from 2027 and could spark constitutional challenges to everything from gaming taxes, car registration and waste levies.
The plaintiffs were supported by the commonwealth, which argued that taxes on the use or consumption of goods were not exempt from the constitution’s ban on the states imposing customs and excise taxes.
The chief justice, Susan Kiefel, along with justices Jacqueline Gleeson, Stephen Gageler and Jayne Jagot, ruled in favour of the plaintiffs. Victoria was ordered to pay costs.
In a joint judgment, Kiefel, Gageler and Gleeson said the case was the “first time this century” the court had considered the constitutional section stating that the power “to impose duties of customs and of excise” is exclusive to the commonwealth.
The Victorian drivers Chris Vanderstock and Kath Davies launched the lawsuit shortly after the state government introduced its zero- and low-emission vehicle road user charge.
The law charges electric and hydrogen vehicle owners 2.8c for each kilometre they travel during the year, and plug-in hybrid vehicle owners 2.3c for each kilometre. Hybrid vehicles were exempt.
Motorists were required to submit photographs of their vehicle odometer to the state government each year and, if they failed to, could be charged for driving 13,500km or have their registration suspended or cancelled.
In a move that could cause wider ramifications beyond road user charging, the court reopened and overruled a precedent case from 1974 for the “anomalous and unsustainable” conclusion that a tax on the consumption of goods was not an excise.
The court concluded a prohibited state excise was a tax closely related to the production or manufacture, sale, distribution, or consumption of goods, that could affect its manufacture or production.
In separate judgments, justices Michelle Gordon, James Edelman and Simon Steward dissented.
Gordon accused the majority of an “abandonment of past authority”, citing cases “which held that particular taxes on goods were not a duty of excise” that “must now be wrong”.
Gordon noted that Victoria had argued other charges that could be challenged on the same basis include “duties on the transfer or conveyance of goods … motor vehicle duties and vehicle registration charges, commercial passenger vehicle levies, gaming machine levies and ‘point of consumption’ betting taxes and waste disposal levies”.
Edelman said that “without any empirical or economic evidence” the majority had concluded that a tax of about $300 was “reasonably anticipated to have a real and substantial economic effect in the market for the sale of goods worth up to $300,000 each”.
Steward accused the commonwealth of a “remarkable and entirely unprecedented” power grab by arguing that it “had exclusive power to impose consumption taxes”. That reading would “render the states and territories the constitutionally fiscal minions of the commonwealth”, he warned.
Davies, who challenged the tax, said she was “thrilled by today’s judgment”.
“Australia is lagging behind the rest of the world on electric vehicle uptake,” she said in a statement.
“Now is not the time to be taxing electric vehicles – it’s the time to be doing everything we can to encourage people to make the switch to cleaner cars.”
David Hertzberg, a senior associate at Equity Generation Lawyers that was representing the drivers, said it “is a landmark constitutional decision”.
In addition to striking down the Victorian tax, the judgment “sets a precedent which will likely prevent other states from implementing similar legislation”, he said.
The Victorian Greens upper house MP, Katherine Copsey, said the decision was “a win for the climate and for Victorians who want to bring down their transport emissions”.
The Electric Vehicle Council’s chief executive, Behyad Jafari, said there is “nothing inherently wrong with road user charges, but they should never be calibrated to discourage the take up of electric vehicles”.
“Any road user charge scheme should be national and we now look forward to working with the federal government on sensible road funding reform, without singling out drivers who are trying to do the right thing,” he said.
