The Australian Government will gradually reduce incentives for electric vehicles (EVs), but they won’t be dropped entirely.
The existing Electric Car Discount (ECD), as the government calls it, will continue in full until March 31, 2027.
EVs provided by employers to employees, including under a salary packaging arrangement, are exempt from Fringe Benefits Tax (FBT) under the scheme. This is based on the fact that the EV falls under the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles, which currently sits at $91,387.
Between April 1, 2027 and March 31, 2029, the full FBT exemption will still apply; however, it is only for EVs at $75,000 or less. Above this price point but below the LCT threshold, vehicles above this will be given a 25 per cent discount on their payable FBT.
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All EVs under LCT threshold will receive the same 25 per cent discount on payable FBT from April 1, 2029.
Current arrangements will also be grandfathered, so that existing leaseholders are unaffected.
Although exemptions to FBT will still be exempt from import duties, eligible EVs are not subject to any changes in the way they do; there have also been separate moves to remove tariffs on imports from the European Union and establish a new zero-emissions vehicle LCT threshold of $120,000 (Jul 1, 2027) for all imported vehicles.
The government has also been trying to encourage the adoption of EVs by its New Vehicle Efficiency Standard (NVES) introduction.
But this isn’t the first change to the government’s ECD, which was introduced until 2025 and applied to plug-in hybrid vehicles (PHEVs) – an approach that has also been used for Plug-In Hybrid Vehicles.
The ECD came into effect on January 1, 2023, but was retroactively applied to July 1, 222. Since 1 April 20, 2025, PHEVs were no longer eligible.
The Australian Government’s statutory review of the ECD was announced in December 2025.
According to the review, the government cited the ECD as an encouragement for sales of EVs; in the first three years to December 2025, it produced an additional 64,000 units over the initial three decades and helped increase the number of electric vehicles available in Australia.
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While the ECD seems to have been a good source of encouragement for EV uptake, “the context in which it operates is changing over time and alternative policy approaches may be more fiscally effective and equitable,” the government said in its review of alternatives.
As PHEV sales continue to grow, and “do not suffer the same non-cost barriers as EVs” (e.g., they do not have any cost constraints), the government also rejected reinstating eligibility for the incentives of a new incentive program called PEREV.”
In addition to expanding the program, government plans to gradually wind it back as a result of loss in lost tax revenue.
According to the government in statutory review, “The revenue costs of the ECD are growing significantly.” Tax expenditures from the exemption of the Fringe Benefits Tax (FBT) were estimated to be $2. in 0 billion over the first 3 years from 2022-23 to 2024-25.
paraphrasing “It is expected that the annual tax bill will be $1. In 2025–26, it is 35 billion and will likely increase to $2. A total of 8 billion in 2028-29 based on the current trajectory and policy contexts, according to what is currently happening with . He said ‘Although s are in the line, “
The Electric Vehicle Council (EVC) praised the move to extend the ECD.
A press release by EVC chief executive Julie Delvecchio said ‘It’s good news for everyday Australians who are doing the sums on going electric.
“The Albanese Government and Minister Bowen have listened and shown they understand EVs are a cost-of-living measure.
It will mean the majority of electric cars in Australia will still be eligible for the Electric Car Discount, meaning people can save thousands on their annual fuel bill bills. , ” and.
The Electric Car Discount is ‘helping households control their fuel bills at a time when Australians are in real pain at the pump, and reduce emissions and dependence on foreignowned oil’ said National Automotive Leasing and Salary Packaging Association (NALSPA) CEO Rohan Martin.
Over 100,000 Australians already fought through the upfront cost barrier of transitioning to an affordableto-run vehicle, which has been helped by “The EV Discount”. Ohne it, many outersuburban families, essential workers and cost-conscious households would not be able to make the switch.
However, while expert modelling emphasized that the need for the current Electric Car Discount policy settings will remain in effect until after the EV market is self-sustaining, we recognise it has a duty on the government to balance fiscal sustainability with Australia’s transition towards reducing emissions future.
In Australia, “The most effective demandside lever for EV uptake is the electric car discount”, or ‘The Electric Car Discount’. International experience shows that withdrawing incentives too early stalls adoption, delays emissions reductions and leaves households exposed to ongoing fuel price volatility. Paraphrast.
However, the ECD had been criticised for its impact on tax revenue.
Speaking to the Australian Financial Review in March 2025, Institute of Public Accountants senior tax adviser Tony Greco estimated the government was losing approximately $564 million annually on tax revenue due to the exemption, despite Treasury having forecasted a cost of $55 million that financial year.
It’s worth noting Mr Greco’s estimation was based on an average EV cost of $60,000, spread across 100,000 novated leases.
The program didn’t just increase EV demand, it helped lower the cost of evs, according to the federal government. According to the government’s review of EVs, median price for these three years from 2021-22 to 2024-25 fell 22 per cent over the three decades between 2022–25.
Since its introduction, EVs have gone from accounting to 1 in the years since it was introduced. 8 per cent of the new-car market to 8. percent of its new car market, and 9 per percent for all cars sold in 2008. a year last year, 3 per cent of s.
The government also cited other positive aspects of the ECD, such as air pollution and noise reductions, in its statement that taking up EVs helps Australia reduce their dependence on imported fuels.
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