25 Nov 2021

Victorian electric vehicles drivers launch High Court challenge to new ZLEV charge

By Peter Holcombe Henley

Victoria's new Zero and Low Emission Vehicle Distance-Based Charge Act 2021 (Vic) is being challenged on the basis it is an excise, which States cannot levy.

Two Victorian car owners have launched an action in the High Court against Victoria's new Zero and Low Emission Vehicle Distance-Based Charge Act 2021 (Vic) (ZLEV Act), challenging its validity in light of section 90 of the Commonwealth Constitution.

The claim was lodged on 16 September 2021. The plaintiffs, Chris Vanderstock and Kathleen Davies, are the Victorian registered owners of an electric vehicle and a plug-in hybrid vehicle respectively. These vehicles are "ZLEVs" for the purposes of the ZLEV Act. Charges of 2.5 cents / km have been imposed on them by the ZLEV Act since 1 July this year. 

This article outlines the plaintiffs' claim that the ZLEV law is contrary to the Australian Constitution, Victoria's initial defence, and what might happen next in this case.

The legal basis of the challenge to the Zero and Low Emission Vehicle Distance-Based Charge

The plaintiffs claim that the ZLEV Act is invalid because it seeks to impose a duty of excise within the meaning of section 90 of the Constitution, a power which is held exclusively by the Commonwealth Parliament. That section reads:

"On the imposition of uniform duties of customs the power of the [Commonwealth] Parliament to impose duties of customs and of excise, and to grant bounties on the production or export of goods, shall become exclusive."

The Notice of Constitutional Matter lodged by the plaintiffs cites obiter dicta in Ha v New South Wales (1997) 189 CLR 465, in which their Honours specifically observed that in that case it was "unnecessary to consider whether a tax on the consumption of goods would be classified as a duty of excise". The plaintiffs now seek to test that question.

The plaintiffs' argument is:

  • The ZLEV Act requires owners to pay the ZLEV charge, which they characterise as a "compulsory exaction of money for public purposes, enforceable by law … [and which is] to be credited to the Consolidated Fund and therefore forms part of the general revenue stream of the State" (ie. it is a tax).
  • The ZLEV charge applies to the use of vehicles, which are "goods".
  • The "criterion of liability" for the ZLEV charge is travel on "specified roads", which effectively includes all use by an owner of the ZLEV (unless use for travel on private property or roads is proved), and therefore the criterion of liability relates to "the consumption and/or use" of the ZLEVs. The plaintiff’s emphasise that the State does not have maintenance responsibility for all of the roads that are "specified roads", as some are maintained by Councils, toll road operators or other private operators, both in Victoria and interstate. They also note that ZLEV owners must also pay the ZLEV charge for kilometres travelled on existing toll roads (whereas non-ZLEV owners do not incur this double-charge).
  • As a result, the ZLEV charge is an inland tax on the consumption or use of goods constituting an excise duty within the meaning of s 90.

Victoria's argument in response: it's not an excise

Victoria's primary argument rejects the notion that a "duty of excise" should be understood as extending to an inland tax on the consumption or use of goods. However, as an alternative defence, it argues that a tax should only be understood as duty of excise if it falls upon locally produced goods and discriminates against those goods in favour of imported goods.

Victoria's defence characterises the ZLEV charge differently from the plaintiffs, and raises several alternative or conditional arguments to preserve the validity of the ZLEV Act. In summary:

  • Registered operators of ZLEVs must pay the ZLEV charge as a contribution to the cost to the State of maintaining roads and / or constructing ZLEV-related infrastructure — ie. it is a user charge, not an "inland tax" as such.
  • Even if the ZLEV charge is considered an inland tax, it is a tax on the activity of using ZLEVs only on "specified roads" (not generally on "use" or "consumption").
  • If, however, the ZLEV charge is considered a tax on the use or consumption of ZLEVs, then inland taxes on the consumption or use of goods should not constitute an excise duty.
  • Finally, even if the ZLEV charge is considered an inland tax on the use or consumption of goods, it shouldn't be considered to be an 'excise duty' for the purposes of section 90 because it neither falls upon locally produced goods nor discriminates against those goods in favour of imported goods.

What does this mean for the other States that have introduced EV charges?

Some of the relevant key elements of the Victorian legislation also exist in the NSW legislation (Electric Vehicles (Revenue Arrangements) Act 2021 (NSW)) and the SA legislation (Motor Vehicles (Electric Vehicle Levy) Amendment Act 2021 (SA)):

  • The charge levels are hard-coded into the legislation and involve similar calculation methodologies (cents / km travelled in the previous registration period).
  • The roads covered by the Acts use different terms ("specified roads" for Victoria, "road or road related area for SA, "public land" and "private land" in NSW), but in each case:
    • kilometres travelled in other States (or Territories) will also be used to calculate the charge; and
    • there is a presumption that any kilometres shown on the vehicles odometer are subject to the charge unless demonstrated otherwise.

However, there are also some differences, including:

  • In addition to the regular retrospective ZLEV charge, NSW also offers a pre-payment option based on estimated future travel.
  • During its deliberations, the NSW Legislative Council required the inclusion of an express intention in section 7 stating that "[i]t is Parliament's intention that the total amount of revenue collected under this Act from road user charges be paid into the Consolidated Fund." This statement does not appear in the ZLEV Act or the SA Act.
  • The NSW Act has come into full operation, however the charges will not be levied until either:
    • 1 July 2027; or
    • an earlier date on which the Treasurer declares sales of battery-powered electric vehicles have exceeded a 30% threshold of total vehicle sales.
  • An equivalent 30% threshold is itself the legal trigger for the coming into force of the amendments to the Motor Vehicle Act 1959 (SA) made by the SA Act, and hence that legislation is largely not yet operative.

Is hydrogen the missing element?

While the plaintiffs own electric or plug-in hybrid vehicles, the third category of vehicles covered by current EV legislation — hydrogen cars — is not represented. This is noteworthy, given existing COAG recognition of the possible need to shift from a petroleum-based to a hydrogen-based fuel excise revenue source over time. Australia's National Hydrogen Strategy includes the following statement:

"Hydrogen is not explicitly considered as an energy source in [existing excise] regimes. As hydrogen production and use grows, appropriate taxation, excises, fees or levies could help ensure that the community shares in the economic benefits from developing a hydrogen industry…. Governments will continue with the revenue arrangements that now apply to hydrogen, but may review them in the future."

If the Federal Government were to levy an excise on hydrogen fuel, based on the current forms of the ZLEV Act, NSW Act and SA Act, charges on hydrogen vehicle travel would be imposed at both State and Federal level.

The legislating States have already aimed to minimise the impact of any initial double-imposition of duties by reducing the per-kilometre charge applying to plug-in hybrids by 0.5 cents / km to 2 cents / km, recognising that fuel excise continues to be paid by plug-in electric vehicle owners. However, hydrogen vehicles are currently exposed to the full 2.5 cents / km charge (like fully-electric vehicles). Given those charge rates are hard-coded, additional legislation is needed to change the level of the charge.

What's next for the challenge?

According to the Consent Order dated 15 October, the parties agreed to exchange preliminary statements of their submissions with the objective of the plaintiffs lodging an agreed special case by 9 February 2022. A draft special is due to be provided by the plaintiffs to Victoria by 26 November 2021.

However, the Notice of Constitutional Matter lodged on 16 September 2021 was sent to all State and Territory Attorneys-General. So far only NSW has lodged a Notice of Intervention supporting Victoria (on 5 November 2022). At this stage, it is unclear whether this intervention may prevent agreement being reached on a special case, or the number and timing of any hearings, given the mixture of similarities and differences between the structure and commencement dates of the three legislative regimes. 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.