As the Federal Government finalises its May 2026 Budget, a significant review of the Electric Car Discount (FBT exemption) is underway, casting uncertainty over one of Australia’s most impactful electric vehicle (EV) incentives. This review, driven by the escalating cost of the scheme and declining fuel excise revenue, could reshape the financial landscape for prospective EV buyers across the nation.

Introduced in 2022, the Electric Car Discount exempts eligible zero-emission vehicles (Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles) from Fringe Benefits Tax (FBT) when provided through a novated lease or as a company car. This policy has been a key accelerant for EV adoption, making electric models significantly more affordable for salaried employees by allowing them to pay for vehicle and running costs with pre-tax income.

Industry data underscores the incentive’s importance. According to the Australian Finance Industry Association (AFIA), lending for low-emission vehicles surged by nearly 20 per cent in 2025, reaching $7.37 billion. Furthermore, almost one in four sales for major EV dealers in 2025 were attributed to novated lease buyers. The exemption has been a powerful tool in bridging the upfront cost gap between EVs and internal combustion engine (ICE) vehicles, encouraging more Australians to make the switch to cleaner transport.

Why the Review Now?

The primary catalyst for the review is the cost of the exemption, which has reportedly exceeded initial government projections. Estimates suggest the scheme could cost the taxpayer up to $2.8 billion in the 2028-29 financial year. As the EV fleet grows, policymakers are grappling with how to sustain incentives while addressing the long-term decline in fuel excise revenue, traditionally a significant contributor to road infrastructure funding.

Treasury staff are actively modelling various scenarios, with reports indicating the government may consider several options, including:

  • Ending the perk entirely: A complete cessation of the FBT exemption for new arrangements.
  • Restricting it to cheaper models: Limiting the exemption’s applicability to EVs below a certain price point.
  • Lowering the Luxury Car Tax (LCT) threshold for FBT purposes: While a recent Free Trade Agreement with the European Union created a specific LCT threshold of $120,000 for zero-emission vehicles, the FBT exemption’s eligibility remains tied to the lower fuel-efficient vehicle LCT threshold, which is $91,387 for the 2026/27 financial year. Any decision not to align these thresholds for FBT purposes could effectively restrict the benefit to less expensive models.

“The potential removal of this incentive has sparked concern within the industry. AFIA research reveals that while 39 per cent of Australians are considering a low-emission vehicle for their next purchase, 37 per cent state they would be less likely to choose an EV if the FBT exemption is removed.”

Industry leaders, including the AFIA, have voiced concerns that rolling back these incentives could dampen consumer confidence and slow Australia’s progress towards its emissions reduction targets. The uncertainty surrounding the upcoming budget has led financial advisors to urge prospective EV buyers to act swiftly to lock in current benefits under existing rules.

Broader Policy Landscape and Road User Charges

Beyond the FBT exemption, the Federal Government is also reportedly accelerating work on a national EV road user charge, with a potential introduction around 2028. This follows the High Court’s 2023 ruling that deemed Victoria’s state-based EV road user charge unconstitutional, shifting the focus to a federally implemented approach. While Transport Minister Catherine King has indicated a road user charge is not expected in the May 2026 budget, its eventual implementation is considered “mathematically inevitable” to address the long-term decline in fuel excise revenue.

For now, the focus remains on the immediate future of the FBT exemption. The outcome of the May 2026 Federal Budget will provide critical clarity for Australia’s EV market, influencing purchasing decisions and the overall trajectory of electric vehicle adoption.

Australians considering an EV should assess their options carefully. While incentives may shift, the long-term cost savings from reduced fuel and maintenance, particularly when paired with home solar charging, remain compelling. For those looking at current affordable options, our guide to the Cheapest Electric Cars Available in Australia in 2026 provides a comprehensive overview. Understanding the full cost of ownership, including How Much Does an EV Home Charger Cost to Install in Australia 2026? A Guide to Types, Prices & Installation, is crucial. For a broader view of the market, consult our Best Electric Cars in Australia in 2026: Buyer’s Guide.

The upcoming Federal Budget will be a defining moment for EV incentives in Australia, and Daily Energy News will continue to monitor developments closely.