Key Takeaways
- New fringe‑benefit tax (FBT) rates introduced in this year’s Budget make electric vehicles (EVs) cheaper for businesses (17% rate) and hybrids less costly (19.6%), while petrol and diesel cars rise to 22.8%.
- The change is expected to boost corporate purchases of EVs, increasing the supply of used EVs as fleets are renewed every 3‑5 years.
- Drive Electric estimates that a $60,000 EV will save about $1,800 annually in FBT, whereas a comparable petrol or diesel car will cost $1,680 more per year.
- Because businesses buy 60‑70 % of new cars in New Zealand each year, the policy shift should quickly raise the number of EVs entering the second‑hand market.
- Greater availability of affordable used EVs will help ordinary Kiwis overcome the upfront‑cost barrier to electric motoring.
- Drive Electric urges political parties to adopt a salary‑sacrifice leasing scheme similar to Australia’s, allowing employees to pay for EVs with pre‑tax income and further lowering the cost of ownership for middle‑ and lower‑income households.
Background on the Fringe‑Benefit Tax Adjustment
The Government’s latest Budget amended the fringe‑benefit tax regime that applies to vehicles provided to employees for private use. Previously, all motor vehicles attracted a flat 20 % FBT rate. From April next year, the rate will differentiate by propulsion type: electric vehicles will be taxed at 17 %, hybrids at 19.6 %, and petrol or diesel engines at 22.8 %. The move is designed to steer business purchasing decisions toward lower‑emission options by altering the total cost‑of‑ownership calculus that fleet managers use.
Impact on Business Buying Behaviour
Kirsten Corson, chair of Drive Electric, described the amendment as an “important and significant demand‑side policy.” She illustrated the financial effect with a concrete example: a $60,000 EV that previously incurred $2,400 in annual FBT (20 % of $60,000) will now incur only $1,020 (17 % of $60,000), a saving of $1,800 per year. Conversely, an equivalent petrol or diesel car will see its FBT rise from $2,400 to $2,880 (22.8 % of $60,000), an increase of $1,680 annually. For companies that evaluate total cost‑of‑business, this differential makes EVs markedly more attractive.
Scale of the Corporate Car Market
Businesses purchase roughly 60‑70 % of all new cars sold in New Zealand each year. Consequently, any shift in corporate purchasing patterns translates directly into a measurable change in the national vehicle fleet composition. Corson noted that the revised FBT rates will have an “immediate effect” on the number of electric vehicles entering the market, as companies reconsider their acquisition strategies in favour of lower‑taxed EVs and hybrids.
Flow‑On Effects for the Used‑Vehicle Market
Most corporate vehicles are replaced on a three‑ to five‑year cycle. As businesses begin to acquire more EVs under the new tax regime, a growing stream of electric cars will reach the end of their lease or ownership period and become available as second‑hand vehicles. This influx is expected to improve both the availability and affordability of used EVs for private buyers, addressing a common consumer sentiment: “We’d love to get an EV, but we can’t afford one.” By expanding the second‑hand market, the policy aims to democratize access to electric mobility.
Clarification of Existing Loopholes
Before this year’s change, a perceived loophole led some to believe that utility vehicles (utes) were automatically exempt from fringe‑benefit tax. Inland Revenue clarified the rule last year, removing any unintended advantage for petrol‑ or diesel‑powered utes. Together with a simplified method for calculating the taxable portion of a vehicle’s cost, the clarification eliminated incentives that previously favoured conventional internal‑combustion vehicles over electric or hybrid alternatives.
Environmental Context
Transport accounts for approximately 18 % of New Zealand’s total greenhouse‑gas emissions. Increasing the share of electric vehicles in the national fleet is a key lever for meeting the country’s climate targets. By making EVs more financially appealing to businesses—and consequently boosting the used‑EV supply—the revised FBT policy aligns fiscal incentives with emissions‑reduction goals.
Proposed Salary‑Sacrifice Leasing Scheme
Drive Electric is now advocating for the adoption of a salary‑sacrifice arrangement similar to one operating in Australia. Under such a scheme, employees could allocate a portion of their pre‑tax income to lease an electric vehicle, with the lease payments exempt from fringe‑benefit tax. Corson argues that this would “make a really big difference for middle and lower‑income New Zealanders” by lowering the effective cost of EV ownership and widening access beyond those who can afford an upfront purchase or a traditional lease.
Conclusion
The Budget’s adjustment to fringe‑benefit tax rates creates a clear financial incentive for businesses to choose electric and hybrid vehicles over traditional petrol or diesel models. Given the substantial proportion of new cars bought by corporate fleets, this shift will quickly increase the number of EVs entering the used‑car market, making electric mobility more accessible to everyday Kiwis. Complementary measures—such as a salary‑sacrifice leasing option—could further accelerate adoption, especially among middle‑ and lower‑income households, while supporting New Zealand’s broader emissions‑reduction objectives.