Clean Car Discount scheme set to close more than $300 million in deficit

Saturday, 9 December 2023

Cross-subsidies appears to have had a bigger effect than expected in changing buyers’ behaviours and should live-on in a different form next year.

The Clean Car Discount scheme is set to shut down at the end of December having paid out more than twice as much in rebates as it will have collected in fees.

Figures supplied by Waka Kotahi Transport Agency showed $587 million had been paid out in rebates on EVs and other low emissions vehicles up to December 6, while only $292m had been collected in fees on higher emission vehicles.

The Government has committed to shut down the “feebate” scheme at the end of the month, after National labelled it a “ute tax”.

The scheme’s current $295m deficit appears set to widen by a further few tens of millions of dollars in the final wash-up.

Data on new vehicle registrations shows car buyers rushing to take advantage of the rebates in their final few weeks while appearing to delay the purchase of gas-guzzlers until the new year, when the fees will no longer apply.

Waka Kotahi also noted it received fees on higher-emission vehicles immediately upon registration, but that there was on average a 30-day lag between lower-emission vehicles being registered and rebates being paid.

A spokesperson said it would be accepting completed applications for rebates right up until December 31. That means it could still have about a month’s worth of rebates to process early next year when it would be receiving no fee income.

The feebate scheme was originally designed with the intention that the value of rebates would roughly match fees collected through the scheme and that the cross-subsidy would therefore balance out over time.

Australia climate minister Chris Bowen says Australia is capable of more production of electric vehicle components, while wanting New Zealand to be on the same page when it comes to supply chains.

The large deficit built up because the former government introduced the rebates six months before applying any fees and – its supporters claim – because it was more effective in encouraging people to switch to lower-emission vehicles than had been anticipated.

The former government tweaked the settings of the scheme in July to attempt to bring fees and rebates back into line, but Waka Kotahi’s figures show that did little to eat into the deficit, which by then had accumulated to total $313m.

Transport Minister Simeon Brown said the scheme had proved “unnecessary, regressive and fiscally irresponsible”.

Scrapping it would provide “hard-working New Zealanders an assurance they will be able to purchase the vehicles they need without being unfairly punished“, he said.

Despite the last-minute rush to take advantage of the rebates, another government policy means car prices may adjust to partly compensate for their removal.

The Government has indicated it will retain a Clean Car Standard aimed at ensuring the average emissions of new and imported vehicles continues to decline over time.

In the absence of the Clean Car Discount scheme, the Clean Car Standard creates a separate though seemingly slightly weaker incentive for car importers themselves to cross-subsidise lower emission vehicles from higher emission ones.

Motor Trade Association chief executive Lee Marshall has suggested the axing of the Clean Car Discount might have little effect in practice, because of that.

The Clean Car Standard largely overlapped with the Clean Car Discount and would continue to result in the cross-subsidisation of lower emission vehicles, but through a mechanism that would not be so obvious to consumers, he said in September.

Green Party transport spokesperson Julie Anne Genter has voiced concern that the Government could water down the emissions-reductions targets set out in the Clean Car Standard following a scheduled review of its settings next year, in response to lobbying from the motor industry.

Brown said prior to the election, when he was National’s transport spokesperson, that the emissions-reduction targets needed to be achievable

“As it's currently set, it's going to be impossible to meet it in a couple of years time. Importers will need to import cleaner cars than are being produced in Europe,” he said then.

Nevertheless, the Clean Car Standard was needed to ensure New Zealand did not become “a dumping ground” and that it got the “clean mix of cars that New Zealanders need”, he also said.