NZ Clean Car Discount Has Been Done Dirty: Fewer Rebates And More Taxes Coming July 1st

On 21 July 2021, the NZ Government introduced the Clean Car Scheme - which incentivised the purchase of zero and low-emission vehicles and placed a tax on higher-emission vehicles. The idea behind the scheme was, on the one hand, to provide a cash rebate on the purchase of both new and used vehicles that are being registered for the first time in NZ that meet a certain emission threshold. The rebate on these zero and low-emission vehicles would be based on the amount of emissions produced, with zero-emission electric vehicles being eligible for a rebate of up to $8,625.

The flip side of the scheme was the tax placed on higher emitting vehicles. This additional tax on higher-emission vehicles was calculated on the number of grams of CO2 the vehicle produced with a maximum tax of up to $5,175.

The relationship between rebate and tax of the Clean Car Discount was pitched as a balancing act, with the money gained from the sale of high-emission vehicles paying for the rebates of their clean car alternatives. The hypothetical result? Incentivising Kiwis to purchase low-emission vehicles, paying for that rebate with the additional tax, and never placing the burden on the NZ taxpayer.

This all makes sense on paper and many Kiwis jumped at the opportunity to get their hands on EVs and PHEVs to take advantage of the Clean Car Discount.

However, the Government is making significant changes to the scheme as of 1 July, decreasing the rebate while increasing the penalty on higher emission vehicles. The quick implementation of these changes comes as a major surprise to many consumers who were ready to take advantage of the scheme - most notably Kiwis who have already ordered their vehicles but are only set to receive them after the cut off date - exposing them to a price increase that they were unprepared for when choosing their new vehicle.

Was The Clean Car Discount Successful? A Complicated Answer.

The Clean Car Discount was highly successful on one front - the rebate. As electric vehicle technology has dominated headlines in the vehicle sectors for the past few years and global petrol prices hitting all-time highs post-pandemic, Kiwis were more than ready to make the switch to lower-emission vehicles. PHEV and EV sales saw an incredible uptick across the New Zealand market with dealerships fighting tooth and nail to keep up with the demand.

Simon Lucas, Managing Director of Simon Lucas Mitsubishi reflected on the impact the Clean Car Discount had on sales at the Auckland Dealership.

“The Clean Car Scheme had an immediate effect, providing a massive boost to the EV and PHEV market. Our own experience was that our PHEV sales went from 10% to 67% of all sales. This was counterbalanced by immediate falls in the ute and combustion engine models in our range.”

He went on to explain the length the dealership has had to go to support this sudden change in buyer habits as the dealership had to shift its approach to ensure that customers were making informed decisions.

“Pivoting involved developing a deep understanding of the new market dynamic to ensure that people were making the right choices for their needs, not just reacting to either receiving a rebate or having to pay a new tax. Education was vital to avoid bad choices as, even to this day, many people don’t understand the difference between EVs, PHEVs and hybrids and their limitations. It was also about managing the annoyance of customers who had to pay tax when they felt they had no other option.”

The popularity of the scheme has resulted in the government hitting its target for increasing low emission vehicles and decreasing higher emission vehicles four years ahead of its schedule.

But remember that balancing act we mentioned before in which the tax pays for the incentive? Well, the mass adoption of these low-emission vehicles has tipped the scales, with the utopian ideal of not burdening the taxpayer having fallen apart. The Clean Car Discount is currently being subsidised by taxpayer money to the tune of $200 million, so the NZ Government has made some significant changes to the scheme in a bid to improve its sustainability.

1 July 2023 Changes To The Clean Car Discount

As of 1 July 2023, the NZ Government will be decreasing the rebate available for low and zero-emission vehicles, while increasing the amount of tax on higher-emission vehicles.

The maximum rebate for zero-emission vehicles will drop from $8,625 to $7,015, while the maximum tax will increase from $5,175 to $6,900. In addition to the tax increase, the vehicles subject to the implementation of these additional fees will reduce from 192 grams of CO2 per kilometre to 150 grams.

The Ripple Effect Caused by the Changes to the Clean Car Discount

While the Clean Car Discount had a price cap of $80,000, the pain from these changes is most likely to affect people looking for cheaper but greener vehicles. For instance, the Mitsubishi Mirage has made a name for itself by being a reliable and comfortable vehicle at an incredibly competitive price point. At an RSP of $19,990 + ORC and eligible for a rebate of $2,026.38, the popular 5-seater hatchback could be picked up new for $17,963.67 + ORC - a great option for Kiwis feeling the pinch of the current economic climate who are wanting to get into a safer, more reliable vehicle while also reducing their carbon emissions..

Changes to the scheme will see the Mitsubishi Mirage lose its rebate completely.

Even vehicles that are still eligible for a rebate may now move the needle into the territory of unaffordable for some Kiwis. The Next Gen Mitsubishi Outlander PHEV made waves on its release, providing incredible performance, features and advanced plug-in hybrid vehicle technology at a competitive price point. Both Mitsubishi PHEVs, the aforementioned Outlander PHEV and the Eclipse Cross PHEV, were eligible for a rebate of $5,750, significantly closing the price gap between their PHEV and petrol variants. This was enough for many people to take the leap, but with that rebate being lowered to $4,025, the incentive to do so may financially no longer be there.

Simon Lucas provided further insight, saying that the change “will be significant on buyer behaviour. There is a market for value priced petrol vehicles like the Mitsubishi Mirage and ASX - it serves those with a budget who want to buy a safer, reliable, low emission vehicle but can’t afford the leap to an EV/PHEV. The removal of the subsidy and increase in tax on these vehicles will do one of two things, it will either turn them back to the used vehicle market, or it will deter their purchase decision and cause them to remain in their existing, higher emissions vehicles. Both outcomes run contrary to the reason the Clean Car Discount was developed in the first place.”

The Next Gen Outlander PHEV was Mitsubishi's best-selling model under the scheme, and only time will tell if this momentum can carry on with these changes.

With the reduction of the rebate and increase in the tax ready to take effect, the people affected the most will be Kiwis that are price-conscious, who don’t have a choice to pay for an EV or PHEV and the commercial vehicle buyers who simply have no other choice.

“The tax on many vehicles is going up between $2000-$3800 - while the industry currently prices vehicles net of the Clean Car Tax the transaction price that the customer has to consider is $2000-$2800 higher than under the old scheme”, Simon Lucas added.

Between a Rock and a Hard Place: What Happens to People Whose Vehicles Arrive in NZ After the 1 July?

With the increased demand due to the scheme, many New Zealanders have been patiently waiting to get their new vehicles. Many people have had to resort to pre-ordering ahead of time to secure vehicles that were made popular by the scheme. It's likely these people will be in for a shock when their carefully planned budgets no longer match up to their order if their vehicle arrives after the cut-off date.

Simon Lucas echoed their frustration, explaining, “The most contentious part of these changes is that they apply to all vehicles registered after July 1st. Given the supply difficulties experienced in New Zealand from late last year, there are tens of thousands of vehicles of all makes that have been pre-ordered by customers that are scheduled to arrive after July 1st. This means customers having made their decisions in good faith under the old scheme have to pay much higher taxes or forgoing a substantial proportion of their rebate. Exempting these particular customers from the changes was lobbied for but the government rejected the submissions. I don’t think any fair-minded New Zealander would agree that this is fair.”

While it's fair to say that the rebate for fully electric vehicles sees the least impact, from $8,625 to $7,015, it is a bittersweet pill to swallow. The vast majority of vehicles that fall into this category would be considered a luxury by many New Zealanders - a market that many don't believe should be incentivised. For instance, it is reported that Tesla owners have claimed over $30 million worth of rebates from the scheme. It's easy to see why many think supporting these luxury purchases has been a major reason for the scheme coming undone while thinking that it was not what the scheme was initially intended for.

Tradies Left Holding the Bag

One of the biggest chinks in the Clean Car Discount’s armour has always been its effect on businesses that rely on trucks and UTEs such as the Triton. Having already borne the brunt of the initial scheme's implementation, these sectors are going to have to grit their teeth even more as the tax increases on their vehicles. The high emission fee affects these work vehicles disproportionately, and with no other options, many businesses are going to be forced to stomach this increase of up to $6,900 per vehicle.

The resistance to the scheme's inability to differentiate between consumer and commercial purposes has always been a contentious topic, but with the further increases on penalties the discussion is likely to get more heated. As Simon Lucas puts it “An incentive scheme presupposes that the consumer has a choice. In the instance of the tradie market and companies, these utes are a tool of trade with no viable alternative. Again fair-minded New Zealanders would see penalties up to $6900 as being unfair when there is no other choice. You can’t tow a tonne of aggregate and throw your concrete mixer in the back of a Tesla. You would also argue that many companies can simply not afford the price of moving to the more expensive EV/PHEV solutions. Those that do and have the ability to, will put up their prices”.

The Clean Car Discount Scheme’s Heart is in the Right Place - But Is That Enough?

The Clean Car Discount Scheme is a step in the right direction, but it's hard to see how it is sustainable in its current form. The incentive to get more people into zero and low-emission vehicles is great forward-thinking, but the taxation on the other end of the spectrum may be too heavy-handed with unforeseen consequences. The penalty for new petrol vehicles fails to address the elephant in the room - that newer petrol vehicles are still a step in the right direction for replacing older vehicles.

When it comes to replacing older cars, new petrol cars can offer low emissions, better fuel efficiency and improved safety standards. And with the Clean Car Discount Scheme raising the prices for some of these cars, it could be argued that it's doing more harm than good by pushing people away from buying a newer petrol car to replace their current higher emission vehicle.

Simon Lucas Mitsubishi Will Keep You Updated on the On-Going Changes To The Clean Car Discount.

There's no doubt that the Clean Car Discount is going through growing pains, and New Zealanders are understandably frustrated. Looking toward the future to create a cleaner, environmentally sustainable New Zealand is in the interest of every Kiwi and figuring out how to do this in the transport sector is proving to be a significant hurdle but ultimately one that the scheme is looking to overcome.

“I think the market will settle into a new pattern as a result of the changes. The buyers receiving a subsidy will still be happy to receive a subsidy and that market will continue. The effect on combustion engine vehicles is likely to be more profound. As we enter the election cycle there is likely to be more uncertainty for both consumers and the industry. The main political parties have significant policies that will have a major impact on buyer decisions in the lead up to and after the election on October 14th”, concludes Simon Lucas.

Simon Lucas Mitsubishi is committed to staying up to date on all the changes the scheme is going through and is there to help its customers navigate it to find the best solution on offer for their vehicle needs. For more information,

visit www.simonlucas.co.nz

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