Who has the power to tax the use of Electric Vehicles?

The Constitution, Law-making powers of State and Commonwealth Parliament and the role of the High Court in making laws.

Vanderstock v Victoria [2023] HCA 30

Two Victorian EV users challenged the ZLEV charge based on the division of powers as set out in the Constitution. The case was heard by the High Court of Australia, with the decision referred to as Vanderstock v Victoria.

The case considered whether Victoria’s law was valid under the Constitution, or whether it intruded into an area, the taxation of excise, reserved exclusively for the Commonwealth under section 90.

It explored key legal concepts including the division of law-making powers between the Commonwealth and the states, the exclusive powers of the Commonwealth under the Australian Constitution, and what happens when a state government makes a law that is within the Commonwealth powers.

In addition, the case also underscored the High Court’s role in defining the limits of state and federal power, applying precedent, and shaping Australian law through judicial interpretation.

Division of Powers and State Law-Making Powers

The fundamental purpose of the Australian Constitution is to define how power is shared within Australia.

One way that it achieves this is by establishing a framework for dividing law-making power between the Commonwealth and state parliaments. This framework creates Australia’s federal system of government, which allows both Commonwealth and state governments to make laws within their constitutional limits, and outlines how to resolve conflicts in law making power between the states and Commonwealth.

Under the Constitution, certain law-making powers are categorised as:

• • Exclusive powers, which only the Commonwealth Parliament can exercise (including duties of customs and excise under section 90).
  • Concurrent powers, which both Commonwealth and state parliaments can exercise, though section 109 ensures that Commonwealth law prevails if inconsistences arise in a state law.
  • Residual powers, which are exercised by the states and cover areas not mentioned in the Constitution, such as health, transport, and education.

At Federation, it was anticipated that the residual law-making powers of the states would enable them to continue as autonomous entities, making laws on the different issues that affected the social and economic well-being of their unique communities. The Victorian Government argued that its new ZLEV charge was a legitimate use of the State’s residual taxing power.

In Vanderstock v Victoria, the High Court was asked to decide:

Is s 7(1) of the Zero and Low Emission Vehicle Distance-based Charge Act 2021 (Vic) invalid on the basis that it imposes a duty of excise within the meaning of s 90 of the Constitution? 

The interpretation of “duties of excise” became central to the case. If the ZLEV charge were classified as a duty of excise, it would fall under the Commonwealth’s exclusive power under section 90. In that scenario, Victoria would have acted beyond its Constitutional authority (ultra vires) in passing the Act, making the Act invalid.

Section 90 – That Australian Constitution 
“Exclusive power over customs, excise, and bounties.
On the imposition of uniform duties of customs the power of the Parliament to impose duties of customs and of excise, and to grant bounties on the production or export of goods, shall become exclusive.”

The Role of the High Court of Australia

The High Court of Australia is the highest court in the judicial hierarchy and the ultimate interpreter of the Australian Constitution. One of its central functions is to resolve disputes about the division of powers between the Commonwealth and the states. In doing so, the High Court acts as a key check on parliamentary power, ensuring that each parliament acts within its constitutional limits.

In Vanderstock v Victoria, the plaintiffs brought their challenge directly to the High Court under its original jurisdiction because they argued that the Victorian Parliament had exceeded its constitutional authority.

Original jurisdiction means that it is the first time a case is being heard in any court. In other words, the case has not been heard in a lower court and then been appealed up through the court hierarchy.  

The High Court’s role in this case was not to assess whether the law was fair or practical, but whether Victoria had the Constitutional authority to impose the ZLEV charge.

The case highlights the High Court’s dual role: it both interprets the law and protects the structure of Australia’s government system. Its reasoning (or judicial interpretation) can also shape the balance of power between levels of government and influence future law-marking.

When disputes arise about the limits of law-making authority, it is the High Court that must interpret the meaning of the law and the Constitution. This process of constitutional and statutory interpretation involves determining the meaning and application of the words of the relevant law. How the High Court chooses to interpret meaning can either preserve long-established understandings of power, or it can reshape the state and federal law-making powers.

High Court Decision

In its decision in Vanderstock v Victoria, the High Court was split 4-3.  The High Court found that the ZLEV charge was effectively a ‘duty of excise’ and therefore fell within the exclusive power of the Commonwealth under s 90.

As a result, the law was declared invalid, meaning Victoria had acted beyond its constitutional power (ultra vires).

Decision making in the High Court on Constitutional Matters
Cases that involve Constitutional interpretation are normally determined by the full bench of the High Court, which is comprised of all seven Justices of the High Court. The Justices will hear oral submissions from both parties and then write their own decision on the case. In cases where the decisions are not unanimous, the majority decision will succeed.

When interpreting law, judicial conservatism is an approach that involves interpreting the law as it was written, considering the plain and ordinary meaning of the words and the intentions of the creators of the law. By contrast, judicial activism is an approach where judges make decisions based on broader interpretations of the law, often taking into account newer social conditions and values.

The Majority Judgement

The majority ruled that the ZLEV Charge was a duty of excise and therefore invalid against section 90 of the Constitution.

Note: Section 109 (the common invalidity clause) does not apply in this case because there was no other Commonwealth law in existence at the time the ZLEV Charge was introduced. Instead, there was a gap in the Commonwealth’s existing taxation framework that the states did not have authority to fix.

In making their decision, the majority overruled the existing precedent of Dickenson’s Arcade Pty Ltd v Tasmania (1974), which had previously excluded consumption taxes from the meaning of excise duties.

In making their decision, the majority adopted a broad interpretation of duty of excise, reasoning that an excise could include a tax imposed at the point of consumption or use, not only during production or sale.

As outlined by Professor Anne Twomey:

“As the minority pointed out in forensic detail, the majority’s approach had the effect of creating a new test for an excise which is inconsistent with all previous authority.” 

This approach, which broadened the interpretation of ‘duty of excise,’ essentially expanded the Commonwealth’s taxing power.

The Dissenting Judgments

In contrast, the dissenting (or disagreeing) judges favoured a narrower, traditional interpretation, consistent with earlier decisions. They argued that long-standing precedent should not be overturned unless it was clearly inconsistent with the Constitution’s text. All three dissenting judges were concerned that the majority’s broader interpretation of excise duties went beyond the original purpose of section 90 and would give the Commonwealth more fiscal (financial) power than originally intended.

In his dissenting judgement, Justice Steward emphasised the importance of preserving state autonomy in taxation and raised concerns that a change to the definition would create legal uncertainty and risk of undermining the financial independence of the states.

“It should be accepted that the States and Territories, and the Commonwealth, have long relied upon the decisions of the majority in each of these cases. That reliance is of great importance to the economic stability of the nation, and it should not now be disturbed, even though it seems to be plain that over the course of the 20th century the States and Territories have wrongly been denied by this Court taxing power over goods.” [824]

Justice Edelman expressed concern that the majority’s interpretation departed dramatically from decades of previous decisions by the High Court. His remark emphasises how many former High Court judges would be overruled with this change in definition of excise duties. To show the scale of this change, he wrote:

“The extension of the essential meaning of an excise to a tax that has a reasonably anticipated economic effect on the pattern of demand, as was sought by the plaintiffs and the Commonwealth, involves a neglect of precedent. It means: Dixon J was wrong; Dixon CJ was wrong; Kitto J was wrong; Taylor J was wrong; Menzies J was wrong; Windeyer J was wrong; Owen J was wrong; Barwick CJ was wrong; McTiernan J was wrong; Walsh J was wrong; Gibbs J was wrong; Stephen J was wrong; Mason J was wrong; Jacobs J was wrong; Gibbs CJ was wrong; Wilson J was wrong; Brennan J was wrong; Deane J was wrong; Dawson J was wrong; Mason CJ was wrong; and McHugh J was wrong. That list can, after today, also include Gordon J, Steward J, and me.” [651]

Justice Edelman highlighted the constitutional significance of overturning so much accumulated authority: if the majority is right, then nearly every major High Court judge for the past century must have misunderstood section 90.

The Impact of Vanderstock on State and Commonwealth Law-Making Powers

The decision in Vanderstock v Victoria has significantly shifted the residual law-making powers of the state governments.

This decision further centralises taxing power at the federal level, deepening Australia’s long-standing “vertical fiscal imbalance” [460] – where the Commonwealth raises most of the revenue, and the states are responsible for delivering most of the public services and infrastructure for their state.

This has brought true Alfred Deakin’s famous statement from 1902:

“The rights of self-government of the States have been fondly supposed to be safeguarded by the Constitution. It left them legally free, but financially bound to the chariot wheels of the central Government.” 

As a result of the decision in Vanderstock v Victoria, the law-making powers of the states has been substantially impacted.

EV charges 
By expanding the scope of the meaning of duties of excise under section 90 to include taxes on the use or consumption of goods, the High Court has broadened the law-making powers of the Federal Government and reduced the states residual powers and their potential revenue.

For example, the NSW Government has announced that their planned road user levy is now in doubt:

“The decision in Vanderstock v. The State of Victoria (2023) (“Vanderstock”) determined that the Victorian Government’s Zero and Low Emission Vehicle Distance-based Charge Act was invalid. The NSW Government is working to assess the potential implications of the decision for NSW’s electric vehicle road user charge.” 

Law making power of states for other charges 
While the ZLEV charge was about road use by electric and low emission vehicles in Victoria, the Court’s reasoning could have broader implications for other state revenue sources.

In his dissenting opinion, Gordon J outlined:

“Victoria also pointed to other State taxes which may be affected by overruling Dickenson’s Arcade, and which have been imposed on the understanding of the law as held in that case, including “duties on the transfer or conveyance of goods as part of dutiable transactions, motor vehicle duties and vehicle registration charges, commercial passenger vehicle levies, gaming machine levies and ‘point of consumption’ betting taxes, and waste disposal levies”.” [437] 
 
Currently, revenue from these activities flows to the states through taxes and licence fees.

If the Vanderstock v Victoria reasoning were extended, many state taxes such as car registration, stamp duty on cars and payroll tax could be vulnerable to constitutional challenge.

The Doctrine of Precedent and Change in Constitutional Law

The doctrine of precedent is designed to ensure consistency and predictability in the law by requiring courts to follow the legal principles established in earlier decisions.

However, as the nation’s ultimate judicial authority, the High Court may revisit or overturn precedent when it considers a previous interpretation inconsistent with the text or structure of the Constitution.

The Vanderstock v Victoria decision highlights several issues related to the capacity of the High Court to do this.

(a) The power of the High Court

While parliament is supreme within its valid powers, its authority remains subject to the Constitution. The Constitution’s meaning, as interpreted by the High Court, ultimately determines the limits of parliamentary action.

Whether judges engage in judicial activism or judicial conservativism, their interpretation directly shapes the scope of parliamentary power; it influences not only the immediate parties to a case, but also future laws made by the States and also the relationships between the courts and parliaments.

(b) Ability to ‘change’ the Constitution without a referendum

As the Constitution was passed in 1900, many feel that it is outdated and needing change. A way to ‘update’ the Constitution is to interpret the sections through a modern-day lens.

As outlined by Professor George Williams:

“The High Court decision in Vanderstock is a reminder that these problems remain, and that Australia is navigating complex, modern challenges with an out-of-date Constitution.”

This decision demonstrates the adaptability of constitutional interpretation to today’s world. It, however, can also introduce uncertainty for governments that have relied on existing, settled case law when designing laws and policies.

(c) If judges in the High Court are not elected representatives, should they be able to make laws through their decisions?

It has been asked whether the High Court decision in Vanderstock v Victoria respected the wishes of the people as outlined in the Constitution. As stated by Greg Craven (AO):

“The High Court itself was seen as the ‘keystone’ of the federal arch, charged with protecting the position of the states, a somewhat humorous position in light of subsequent history… Surely, the interference by the High Court in the federal settlement achieved by the Constitution – for example, by consciously limiting the power of the states over indirect taxation – is entirely illegitimate?”

Law Making and Law Reform

Australia’s law-making system relies on two main institutions: Parliament, which makes the laws, and the courts, which interpret and apply them.

The High Court, with its independent judiciary, oversees this balance by interpreting the Constitution and acting as a check on parliament when questions arise about the limits of legislative power.

Vanderstock v Victoria illustrates how this relationship operates in practice. The case became a point of tension between the Victorian parliament, seeking to respond to changing technology and funding needs, and the High Court, which provided their interpretation of the constitutional limits of that response.

Law reform consistent with the Constitution  
If the state governments do not have the power to levy a tax on EVs, it falls to the Commonwealth to reform the laws.

The Productivity Commission has recommended law reform by the Federal Government regarding fuel taxes. It has suggested the fuel excise be replaced with a direct user charge. This would ensure EV drivers pay a share of road maintenance and infrastructure costs, whilst also providing an environmentally motivated mechanism to encourage EV vehicles.

Clarification of laws through further constitutional challenge 
With such strongly worded dissenting judgements, it is expected these persuasive arguments will lead to a constitutional challenge to relook at the decision in Vanderstock v Victoria.

This challenge does not need to be confined to cases regarding roads and fuel excise. Other industries facing large scale change by emerging technology could raise similar issues.

For instance, the growth of digital services (like ride-sharing platforms) and emerging forms of online gambling complicate how goods and services are defined and taxed. States have traditionally relied on gambling taxes as a major source of income, but if courts were to extend Vanderstock’s reasoning to these contexts, some existing state revenue streams could be placed at risk.

Conclusion

The decision in Vanderstock v Victoria is an important case study for understanding how Australia’s system of government operates under the Australian Constitution. It animates federalism, the division of powers, the doctrine of precedent, statutory interpretation, and the interaction between parliaments, courts and law reform.

This case also shows how the High Court acts as both an interpreter and guardian of the Constitution, defining the scope of exclusive, concurrent and residual powers, and ensuring that parliaments remain within their constitutional boundaries. The Court’s reasoning further illustrates how principles such as judicial activism, judicial conservativism and the doctrine of precedent shape constitutional
meaning and influence the balance of power between the Commonwealth and the states.

At the same time, Vanderstock reveals how judicial decisions can have far reaching consequences beyond the courtroom. By striking down the Victorian law, the court reaffirmed the supremacy of the Constitution and the federal hierarchy. It also demonstrated how judicial interpretation can influence parliamentary reform, prompting governments to revisit outdated systems of taxation and funding in light of new technologies.

Ultimately, Vanderstock v Victoria is an important case to understand how the Constitution and its principles underpin Australia’s democracy, guide its institutions, and respond to emerging challenges in a changing world.