Luxury tax decision slammed
By RON HAMMERTON
A DISAPPOINTED Australian automotive industry has pledged to continue to pursue the federal government on luxury car tax (LCT) reform after Canberra this week snubbed a recommendation by the Henry review to axe the impost.
Although prime minister Kevin Rudd and federal treasurer Wayne Swan have ruled out the abolition of the tax on cars priced above $57,123, the industry’s peak body, the Federal Chamber of Automotive Industries (FCAI), says the federal government still has options to modify the tax to make it fairer.
The FCAI also indicated it would lobby the government to implement other Henry review recommendations that have not been explicitly ruled out, including reform of the fringe benefits tax (FBT) on company cars, abolition of stamp duty, registration charges and fuel excise, plus the introduction of a road-user charge.
The failure to adopt a road-user charge, which is commonly referred to as a congestion tax, has also prompted Australia’s motoring associations to this week urge the federal government to reconsider its position.
FCAI chief executive Andrew McKellar described as “regrettable” the government’s decision to go against the Henry recommendation on the LCT.
“Nobody could argue that it was a well-constructed tax,” he told GoAuto. “Nobody could argue that it has been applied in a manner that has seen any real benefits.
“We would be keen to engage the government to put some sort of reform to that tax firmly on the agenda.”
General News center imageLeft: FCAI chief executive Andrew McKellar.
Mr McKellar said he was disappointed that the government had apparently rejected that particular recommendation without more detailed consideration “because the recommendation itself makes very good sense”.
He said the recommendation by treasury secretary Ken Henry and his review panel to kill the LCT “could not be clearer”.
“The report has recommended that the luxury car tax should be abolished and that is something that is wholeheartedly supported by the automotive industry,” he said.
The tax currently kicks in at $57,123, imposing a 33 per cent tax on the GST-exclusive component of the car price above the threshold.
Mr McKellar said the Henry report had “nailed it” in suggested changes to taxes imposed on motorists, and had produced a “very well considered and in many ways a very clever report”.
He said a recommendation for a simplified, 20 per cent flat rate of FBT on company cars, regardless of distance travelled, had a “certain amount of merit”.
The current system has been criticised for being overly cumbersome and also for potentially encouraging drivers to clock up more kilometres than necessary to achieve a lower FBT rate under the scaled system that reduces the tax for high-mileage drivers.
Mr McKellar said the Henry report’s recommendation, if adopted, would retain an effective encouragement for people to continue to package motor vehicles as part their remuneration while greatly simplifying the operation of FBT on motor vehicles.
“As well, it would successfully neutralise the criticism of the existing statutory formula which relates to the kilometre-based thresholds,” he said.
“It ensures that it is better structured, based on an averaged assessment of a split between private and business usage for packaged motor vehicles.
“It doesn’t matter whether you drive 5000km or 25,000km, the effective FBT rate would be 20 per cent.
“That is certainly something of merit, and which I think we would be urging very serious consideration.”
Mr McKellar said the FCAI would be willing to consider supporting the controversial road-user charge as long as other imposts on motorists, including the stamp duty on motor vehicles, fuel excise and motor vehicle registration charges are also on the table for discussion.
Under the Henry recommendations fuel excise, among other taxes, should be substituted by a road-user charge under which vehicle owners would be automatically billed directly for accessing roads, with charges varying according to location, time and distance travelled.
Mr McKellar said the recommended road-user charge should be considered in a “holistic” approach to other tax changes recommended by Henry, including the abolition of stamp duty, registration changes and fuel excise.
“We start with an open mind on that issue, and we have to look at it as an element of a more comprehensive strategy and therefore something that the industry is quite prepared to give consideration to,” he said.
“But we need to look at it context of the other elements that would sit in as part of the broader strategy.
“If that includes things such as the luxury car tax and changes on fuel excise and abolition of stamp duty and so on, then all those things may well make very good sense.
“So I don’t think we would rule anything out, provided you had a good balance of the good things along with the more difficult things.
“And then I think that is something that the industry would be keen to sit down and work through with government.”
Australia’s motoring organisations, including the Australian Automobile Association (AAA) and its member bodies such as the NRMA, RACV and RACQ, are keen to pursue the implementation of the road-user charge system, saying they are disappointed the government did not announce the change along with other measures this week.
AAA chief executive Mike Harris welcomed the Henry report’s positive proposals and said it would now make strong representations to the federal government seeking a specific timeline on the introduction of road-user charges.
AAA member organisation, the RACV, also said the road-user charge system should be prioritised, with money accumulated through the new system offset with fuel excise cuts.
RACV general manager of public policy Brian Negus said that under the current system, the government collected 38 cents on every litre of petrol or diesel, and yet returned only about 10 cents a litre to improving the road system.
“We would urge the government to adopt the road-user charge, which is a fairer system and targets congestion,” he said.
“We will also urge that the money collected from the charge be returned to improving our roads and our public transport systems.”
The view was echoed by RACQ public policy manager Michael Roth, who said southeast Queensland had experienced increasing congestion in recent years.
“We can only hope that the reforms put forward in the review will be considered by the government in the near future because we believe they will result in less congested roads,” he said.