No one likes to lose a lurk and those making a nice living out of that lurk understandably hate to lose it even more, but the fact remains that the car fringe benefit tax and novated lease business has been just that: a lurk whose days were always numbered, albeit it being a nice lurk enjoyed even by plenty of Australian Tax Office staff.
And that's the inherent warning for Google and its Lurk Meister peers at the peak of the tax avoidance industry down to the odds and sods still enjoying various smaller iniquitous tax breaks – they're not going to last because Australian state and federal governments can't afford such irrational largesse much longer.
It's a farcical situation when vehicles driven for purely private purposes are given the same sorts of tax deduction and GST privileges as vehicles used for business, yet most of the coverage of the FBT reform seems to have been devoted to the squealing of the those feeding off a policy that randomly advantaged a few and disadvantaged most Australians.
Ignoring the downside of an M. Mouse policy has created the impression among those that don't know that countless jobs are to be wantonly destroyed. And that is all the incentive the federal opposition has required to again abandon any sort of economic principles in favour of a quickly populist stance. And, in the same manner as its opposition to any and all forms of resources rent tax, this latest cheap stunt will no doubt generate plenty of donations for its election war chest.
What's being missed is that everyone who doesn't have a novated lease to buy a new car is effectively subsidising the minority who do. According to the scheme's promoters, it's a subsidy worth about $3000 a year, and thanks very much to all the mugs in Australia who have been paying it.
The uncritical reporting of the squealing vested interests has resulted in plenty of exaggerated claims going unchallenged. For example, the AFR yesterday quoted Matthew Honan, managing director of salary packager Remunerator, as claiming the government could lose more than $560 million in import duties, GST and stamp duty from lower car sales. In my opinion, that's a silly claim for a number of reasons.
It's only as silly as plenty of other figures being thrown around with all sorts of unverifiable assumptions about just how much of a tax break Australians need to buy a car. The lurk industry would have you believe there are a whole pile of people who will otherwise catch public transport unless they are allowed to avoid paying GST on petrol, car maintenance and the purchase price. (They do have to pay GST on the sale of the vehicle, but that's inevitably a lot less than the avoided GST on the purchase price.)
Avoiding GST is a key part of the appeal of a novated lease. As a slight simplification, the novated lease system allowed an employee to have all the GST involved in buying and running a car to be offset by the employer's total GST collection obligation – meaning the ATO missed out on revenue.
South Australia doesn't like the impact of the changes on local car manufacturers – maybe the other states should speak up about the problem they all have with GST collections shrinking as a proportion of total revenue.
A random application of GST exemption would stimulate buying activity in any sphere – but it would be very silly policy indeed. The Liberal Party promising to retain the car lurk is particularly hypocritical when it's also promising a white paper review of the tax system that will include consideration of broadening and/or increasing GST.
I happen to know a little about how novated leases work because I was once hired by a lease company to explain it to people – not the easiest of tasks. What was obvious was that it was a strange system that resulted in the lucky salary-packaged minority being subsidised by the rest.
Three things are required for real tax reform: genuine political leadership, a responsible opposition and, particularly when the first two are missing, a crisis. We're very short on the first two and have been for quite some time – the last big tax reform, the introduction of the GST, was only possible because we had a responsible opposition in the form of the Meg Lees' Democrats who compromised to allow it through for the benefit of the nation even though it cost them dearly politically.
It was the crisis of needing to fund the carbon tax change that has produced this promised end to the novated lease rort, but it's been percolating for a couple of years. The irrational vehicle tax deduction regime was one of the things listed during the tax summit in 2011. There were others – and you wouldn't want to plan a long career based on exploiting them.
As to the bigger question of the car industry's special pleading, Crikey's Bernard Keane (one of the few journalists to see through the PR barrage) put it thus:
“According to the chorus of outrage from business peak bodies, the automotive sector and salary-packaging advice firms – requiring taxpayers to justify their exemption claims and thereby recouping $1.8 billion in taxes currently lost through exemptions – will inflict critical damage on them. It's one thing to say you need handouts to stay in business, quite another to insist a tax rort is the only thing keeping you alive.”
Maybe you wouldn't want to plan a long career in that industry either.
Michael Pascoe is a BusinessDay contributing editor. By way of disclosure, he doesn't have a novated lease, but does use the log book method to claim a proportion of his vehicle costs as a tax deduction.
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