Life on the West Island - Unproductive

One of the outcomes of the recent West Island productivity summit has been an agreement between the federal, state and territory governments to introduce a new tax – a “road user charge” on electric vehicles. This decision was based on advice from the Productivity Commission that such a move would address the current situation, where electric vehicles are avoiding their responsibility to help fund roads and thus disadvantaging conventional petrol and diesel vehicle owners. The Commission advised that the new charge would improve the nation’s productivity.

This advice was greeted with amazement and dismay by economists and environmentalists, such as the Director of the Australia Institute Richard Denniss, who responded angrily:

The Productivity Commission’s ideological slip is showing, and as a result, the advice it is giving the government is as confused as it is unproductive.

Believe it or not, in 2025, with Australia’s greenhouse gas emissions from transport at a near-record high, the Productivity Commission is more worried about subsidies for electric vehicles that account for just 1 per cent of the cars on our roads than it is about subsidies for the enormous 4WDs that have come to dominate our suburban streets in the past decade.

At the same time that the Commission insists productivity in the housing market requires cutting back “red tape”, it is recommending a climate resilience code that would add regulation to the same industry. Pick a lane, commission people.

Let’s start with cars. The Commission has suggested incentives for electric vehicles, such as the fringe benefits tax exemption, should be phased out on the basis that they “distort the market”. That makes as much sense as arguing we should impose the GST on fresh food because it distorts the market – when distorting the market was the whole point of the tax break. Economics 101 says we should tax things we want less of and subsidise things we want more of.

If the Commission doesn’t think we should have more EVs on the roads, it should say so. But arguing that we should remove subsidies for EVs because they are working as intended is simply absurd.

But the real problem with the PC’s pogrom against EV subsidies is its lack of consistency. While it is happy to punch down on the small number of EV drivers, it has chosen to remain strategically silent about the enormous subsidies that underpin the record sales of enormous 4WD utes.

Because most of the heavy and inefficient twin-cab utes on our roads are classified as “commercial” vehicles by the tax office, their drivers not only get to park in loading zones for free while they grab a coffee, but they also get to avoid FBT and luxury car tax as well. Exempting utes from the luxury car tax cost $250 million in 2023 alone, mostly from exempting the sales of hugely expensive RAMs and Chevrolets. The exact cost of the FBT exemption is unclear. But given Australia has at least 1½ utes for every tradie (and that includes jobs like bakers, rarely known for their utes), the effective subsidy is probably considerable.

But while the Productivity Commission rages against “distortions” that have encouraged people into EVs, apparently it has no problem with the fact that the nearly six-metre long and 2.2-metre wide $250,000 Dodge Ram 1500 TRX Final Edition is eligible for tens of thousands of dollars of tax breaks because it’s a “commercial” vehicle.

The commission and some state governments argue that taxing EVs is urgent because, in time, the lack of fuel tax their drivers pay might become a budgetary problem. But if the commission or anyone else was really worried about budgetary problems, it would get behind the ACTU’s call to limit the diesel fuel rebate to $20 million a company, which would raise $14 billion over three years.

If the Productivity Commission was serious about productivity, it would start with the biggest distortions — not the smallest. It would focus on the entire fuel-tax system, it would look at charging the heavy trucks that do the most damage to roads, and it would do all it could to reduce the number of enormous utes on our narrow streets. It’s unproductive for the Productivity Commission to spend so much time talking about such small problems.

Science says that all the big utes on our roads and undertaxed gas we are exporting are causing dangerous climate change, and, in turn, homes will soon be hit by bigger storms, bigger hail stones and bigger insurance premiums.

The Productivity Commission was right to recommend measures to ensure our buildings are more resilient to climate change. But it is wrong to stay silent about its recommendations while business lobby groups drone on about the need to cut red tape.

Subsidies for big utes, fossil-fuel production and the use of diesel by industry are major distortions to our economy. Scrapping them would raise far more money than introducing new taxes on EVs. But don’t hold your breath waiting for the Productivity Commission to take a consistent approach to its advice; it has always been better at picking on weak political opponents than on powerful vested interests.

What this all means is that, despite all their rhetoric about tackling climate change, West Island governments are failing to turn their words into actions. Despite all the handwringing about the ever-increasing toll of “natural” disasters, such as severe storms, floods and fires related to global heating, our politicians are more focussed on propping up fossil fuel mining and exports than in actually reducing destructive carbon emissions. Similarly, those governments are tinkering around the edges with Band-Aid “solutions,” without really tackling the huge issues which both determine national productivity levels and at the same time ignore the need for urgent action to attack the global climate change crisis.