The Australian government has decided to retain its electric vehicle tax discount for another year, as rising fuel prices linked to tensions in the Middle East push more consumers towards electric cars.
In a joint announcement, Treasurer Jim Chalmers and Energy Minister Chris Bowen said the fringe benefits tax (FBT) exemption for eligible electric vehicles will remain fully in place until March 2027, The Guardian reported.
The incentive, introduced in early 2023, has reduced the cost of leasing electric vehicles by removing FBT, saving buyers thousands of dollars. However, the government indicated that changes will be introduced gradually to make the scheme financially sustainable.
Under the revised plan, from April 2027, the full tax exemption will apply only to electric vehicles priced below 75,000 Australian dollars. Vehicles priced between this level and the luxury car tax threshold—currently about 91,387 Australian dollars—will receive a reduced 25% FBT discount.
From April 2029, the policy will shift to a flat 25% FBT discount for all eligible electric vehicles below the luxury threshold.
The ministers said the changes are aimed at encouraging manufacturers to bring more affordable electric vehicles into the market, noting that the availability of lower-cost models has increased significantly in recent years.
The decision comes as demand for electric vehicles has surged. According to industry data, EVs accounted for about 15% of new car sales in March, double the share recorded a year earlier. Sales of brands such as Tesla and Polestar rose 47% in the first four months of the year compared to the same period last year.
The rise in demand follows a sharp increase in fuel prices after disruptions in the Strait of Hormuz, with petrol prices crossing 2.50 Australian dollars per litre in late March.
The growing popularity of the scheme has significantly increased its cost. Initially estimated at 605 million Australian dollars over seven years when proposed ahead of the 2022 election, the total cost is now projected to reach 10.1 billion Australian dollars over the same period.
Despite concerns over rising costs, Prime Minister Anthony Albanese defended continued support for electric vehicles, saying consumers who have switched are unlikely to regret the decision amid high fuel prices.
The government said it will continue supporting households transitioning to electric vehicles while gradually scaling back incentives to manage long-term fiscal impact.
