Road user charging factsheet

Why a universal mass × distance Road User Charge (RUC) is the fairest way to cost motoring

This fact sheet answers a number of common of questions about fuel excise, road-related revenue and the need to get any road user charge (RUC) settings right. Hopefully it helps clarify a number of things for AEVA members when explaining our policy to others. A copy of our options paper can be found here.

What is Fuel Excise?

Fuel excise is a Commonwealth tax which applies to all liquid fuels at the point of production or importation, and is passed on to customers. It is currently set at 51 c/l. In 2023, $20 billion of fuel excise was collected. Excise collected from petrol sales have halved over the last 15 years, but excise collected from diesel has increased slightly.

Is Fuel Excise the same as a RUC?

No, but it is considered to be ‘road-related revenue’. While it’s not specifically collected for funding roads or maintenance, businesses or individuals who use that fuel for driving on public roads will ultimately pay it. If you use fuel for producing goods or off-road use, you can claim it back through the Fuel Tax Credit scheme.

What are Fuel Tax Credits (FTCs)?

FTCs are reimbursements to businesses who burn liquid fuels, for the purposes of production, and off-road use. Miners and farmers are entitled to claim all 51 c/l back, while heavy vehicle operators are entitled to claim back 19.2 c/l. In 2023, $7.7 billion of fuel excise was handed back to businesses as FTCs, leaving $11.9 billion in net fuel excise revenue. Rather generous isn't it?

So, does Fuel Excise pay for roads?

No more than any other tax does. Fuel excise revenue goes into consolidated revenue, and the Commonwealth government spends this money on all kinds of services, including roads. Fuel excise represents about 38% of all road-related revenue. Registration is about 30%, and stamp duty 14%, while tolls and council rates make up the difference.

What about vehicle registration?

Registration is a State government charge. It reflects the cost of keeping a roadworthy motor vehicle licensed for use on public roads. Each state and territory uses a different method of calculating a vehicle’s annual license fee, but generally the bigger the vehicle, the more you pay. You pay this charge regardless of how far you drive.

So how much do we spend on roads each year anyway?

Total roads expenditure from all levels of government in 2023 was $38.6 billion ($8.7 B Commonwealth, $23.7 B State, and $6.3 B Local). That's a lot of money for a car-dependent nation of 29 million.

And how much road-related revenue is collected?

Total road-related revenue from all levels of government in 2023 was $31 billion ($12.4 billion through Commonwealth excises and duties, $14.7 billion from State government duties and fees, $3.8 billion from toll roads, and the remainder from local government rates and charges).

Where does the remaining $7.7 billion come from?

General taxation, of course.

Do EV drivers pay to use the roads?

Yes! EV drivers still pay rego, driver’s licence fees, stamp duty, customs duties, parking fees, tolls and the GST. They don’t pay fuel excise because they don’t use fuel, just as non-smokers don't pay tobacco excise.

Am I paying for roads even if I don’t use them?

Yes, we all benefit from roads, even if you don't own or use a vehicle. If you call an ambulance or get a pizza delivered, it comes to you by road.  All aspects of modern life are enabled through road transport at some point. The difference between road revenue and expenditure comes from the many other taxes and charges we pay, but one thing is for certain - you will definitely save money by not driving!

What is a road user charge (RUC)?

A RUC is a fee which is paid by road users proportional to how much they use the roads. It can be calculated in a number of ways, but is always proportional to use.  Most commonly a RUC is based on the distance a vehicle is driven, as a flat, per-kilometre rate.

Why was the Victorian EV RUC revoked?

In a High Court challenge, the Victorian RUC was deemed unconstitutional, finding that only the Commonwealth government may apply an excise on a good or service. The Victorian government was claiming to be recovering lost revenue from a source which was never theirs to collect.

What was wrong with the Victorian RUC?

The AEVA identified three major problems with the Victorian scheme.

1. Victoria tried to 'go it alone' and introduce a road revenue system without broader consultation with other states and territories, or the Commonwealth. It meant a better system wasn't developed with harmonisation across state lines. Victorians who travelled interstate had to keep a logbook and claim these separately!
2. The scheme was grossly inequitable. The flat rate of 2.5 c/km was applied to all EVs, no matter how heavy or light, big or small. An electric motorcycle paid the same RUC as a 2.5 ton SUV, despite the motorcycle having an infinitesimally small impact on road wear and tear. This was despite being presented as a counter-measure to the states 'generous' EV incentives, which actually excluded electric motorcycles! 
3. Conventional hybrid vehicles are the main reason fuel excise has been declining over the past 15 years, yet these were not part of the Victorian RUC scheme. Plug-in hybrids were charged a lower rate, as it was assumed some of the driving was done using petrol power but there was no way to distinguish. At a time when EV uptake was very much in its infancy, charging EVs a flat-rate RUC was only going to slow the transition down. 

Does Fuel Excise address the mobile costs of motoring?

If fuel excise is considered the primary 'mobile' cost of motoring, a new petrol vehicle which averages 7 l/100 km is effectively paying 3.57 c/km. Hybrids can achieve as little as 3.5 l/100 km, which is only 1.75 c/km. Suffice to say, EVs consume no fuel. Australia's fleet average efficiency is actually just over 11 l/100 km, or about 5.6 c/km for most cars on the road today. The high average consumption is partly due to the average age of the fleet (over a decade) but mostly due to the ever-increasing weight of today's cars.

Petrol cars in the late 1980s often achieved the same mileage as today's hybrids. Cars today are almost 40% heavier (although undeniably safer, for the occupants at least) however the automobile industry has also pushed much larger, heavier and more profitable SUVs onto consumers, while generous tax breaks saw diesel dual-cab utes become extremely popular. Today, the Australian family car has an average kerb weight of just over 2 tons!  If fuel excise was intended to discourage fuel consumption, it's probably not working.

The popularity of hybrids has seen excise collected from petrol fall from $11.3 billion in 2009 to 7.7 billion in 2023. EVs on the other hand have only just cracked 300,000 vehicles, with the majority only joining the fleet since 2020. Fuel consumption is steadily being decoupled from road use, and while EVs have played a vanishingly small part in this, the trend will only continue.

Is there a better way to do a RUC?

Yes. The costs associated with building, accessing, and using roads each have their own means for revenue. The mere presence of roads (even if you don't own a vehicle) is a net benefit to all Australians, so it is fair that the construction of transport infrastructure be funded through general taxation. The privilege of being able to access well-engineered safe roads, using a fleet of licensed and roadworthy vehicles also comes at a cost; this is largely funded through state registration and license fees. Finally, the operational, or 'mobile' cost of roads should be paid by those who use the roads, as they use them.  This is where a universal, mass × distance road user charge can eventually take the place of fuel excise as the primary operational revenue source.

Wear and tear on roads is the product of vehicle mass and distance driven. Early research on heavy vehicles found that the true impact is actually closer to the fourth power, but for passenger vehicles, using a simple linear relationship is appropriate. This also aligns with typical fuel consumption too. All vehicles contribute to road damage in this way, regardless of fuel source. If fuel excise is used as a metric to determine an equivalent price per kilometre, the rate should be expressed in cents per ton-kilometre (c/t•km). Considering the average fuel efficiency is 11 l/100 km, vehicle mass is 2 ton, and fuel excise is 51 c/l then the effective cost is about 3 c/t•km.

If a 1.8 ton car drives 12,000 km in a year, it would be liable for a $648 annual RUC.

If a 140 kg motorcycle rides 10,000 km in a year, it would be liable for a $42 annual RUC.

These numbers are based on paying an amount equivalent to fuel excise. A much lower rate should be applied in the early stages of RUC introduction to minimise financial stress for those yet to make the shift to electric drive.

What about heavy vehicles?

Heavy vehicles (anything with a gross vehicle weight over 4.5 tons) are regulated separately to light vehicles. Most are eligible for fuel tax credits, meaning their effective fuel excise is only 32 c/l. Trucks and buses move varying loads, with combined vehicle weights regularly exceeding 42 tons. It's no secret that trucks are the primary cause of damage to roads, but would Australians be willing to pay more for their goods if we charged trucks proportionally? Might this encourage more goods to be moved by rail?

Based on the current fuel excise paid by heavy vehicle operators, and typical loaded mass, an articulated truck might be charged 0.5 c/t•km under a universal mass × distance RUC, in place of fuel excise. If the universal RUC is not applied to heavy vehicles, they could continue under the current fuel excise arrangements, considering uptake of battery-electric trucks is proceeding much slower than it is for passenger vehicles.

What about country drivers? Don't they drive further?

Motorists in ICE cars already pay fuel excise proportional to how far they drive, so this is nothing new. But data from the BITRE indicates that regional and rural motorists don't drive any further than suburban Australians, with many regions actually driving less than the national average of about 12,000 km. All but those in the most remote locations travel much the same distance each year, and for every long-distance driver in the bush, there's an Uber driver in the city doing the same or more. 

One can also argue that roads in rural Australia are effectively subsidised already, considering the similar high construction costs and lower volumes of traffic using them. In the interest of equity, retaining the same RUC rate regardless of geographic region is fair.

Should fuel excise be reconsidered as a pollution tax?

As burning less fuel is a very good thing to do, and fuel excise is paid on every litre of fuel burned on a public road, fuel excise may no longer be an effective road-use charge, but it is arguably the perfect pollution tax! At 51 c/l, that equates to a carbon dioxide price of $222/ton which is at least 3 times higher than the current estimated price of $70/ton.

Carbon dioxide isn't the only burden these vehicles push onto society - they produce lots of poisonous nitrogen oxides (NOx), carbon monoxide (CO), polycyclic aromatic hydrocarbons (PAHs) and carcinogenic particulates smaller than 2.5 micrometers in size (PM_2.5). This pollution is released into the atmosphere, contributing to photochemical smog, respiratory illness and premature death. A great summary of the scale of harm can be found in this research paper from several Australian universities and health institutes.

Considering the additional burden this pollution imparts, the government may consider retaining the fuel excise, but re-naming it as a pollution tax. The fuel excise rate could be reduced, but in AEVA's view, it should be left as is while a universal mass × distance road user charge is introduced gradually until 2035, which is when all passenger vehicles should be zero-emissions in operation.