Feebate follies

Dr Eric Crampton
Insights Newsletter
18 June, 2021

The vehicle feebate scheme announced Sunday might result in more electric vehicles, but it cannot affect net carbon emissions.

Transport is covered by the Emissions Trading Scheme’s binding cap on net emissions. So if a petrol company purchases one fewer permit, someone else can buy it instead.

Tightening the cap is the only thing that reduces net emissions within the sector covered by the ETS. The government can always tighten the cap even without the feebate scheme.

But leave aside for now that the scheme will not reduce net emissions. And that higher emitting vehicles’ drivers wind up bearing what Treasury called a double burden: they pay an up-front tax on their vehicle, as well as carbon charges when they fuel up.

We might at least hope that the policy would be implemented well. Unfortunately while the subsidy scheme sounds simple in principle, things are always a bit trickier when you lift the hood.

On Wednesday morning, we met with Lyn McMorran of the Financial Services Federation. Her members handle the financing or leasing of most vehicles on the roads.

Sunday’s announcement came as a surprise and raised important questions.

Does the subsidy for a newly important leased electric vehicle go to the finance company as the vehicle’s legal owner or the registered driver? It will matter in revising lease contracts. Drafting those to comply with plain English requirements takes time.

How does the subsidy interact with Fringe Benefit Tax rules if the registered owner draws the subsidy?

At what point does the subsidy apply? When a car is ordered and paid for, or when it arrives in-country?

She had been unable to find any answers but may find some next week. They might then have a week to update contracts before the scheme comes into effect on 1 July.

Important details like these should have been presented as part of Sunday’s announcement if they had been thought through. Had the government consulted with affected sectors before the surprise announcement, it might have learned what needed to be pinned down.

Instead, we had a Sunday morning surprise announcement of a policy that cannot possibly work towards its stated objective, and that might, at least in the short term, make it harder to lease an electric vehicle because nobody knows what the rules are.

It is not a good way to run a country.

Listen to Lyn McMorran, Financial Services Federation as she explains the practical problems of the Governments feebate scheme in our Initiative podcast.

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