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Published 29 July 2013 12:04, Updated 30 July 2013 07:10
The FBT treatment of leased company cars was originally intended as a pillar of support for Australia’s car manufacturing industry, but with that industry now on its knees, the FBT concessions on salary-sacrifice cars appear to have outlived their usefulness.
The salary-packaging industry has raised a $10 million fighting fund to convince the Rudd government that its decision to scrap $1.8 billion worth of fringe benefits tax concessions on salary-package company cars is bad for the economy, disastrous for the salary-packaging industry and an unfair imposition on employees who include leased vehicles in their salary packages.
The savings form a substantial component of the $3.8 billion worth of government spending cuts needed to offset the cost of another sudden government decision to move from a fixed carbon price to a market-based emissions trading scheme.
The industry is entitled to wage a co-ordinated campaign against the unexpected changes which, in the short term at least, represent a major blow to its viability. But is the long-standing FBT concession good economic policy?
The Australian Salary Packaging Industry Association’s campaign raises a potentially uncomfortable dilemma for the business community: is removing a tax concession on cars for employees – which will require employees to keep logbooks – an act of responsible government policy in a slowing economy, or are sectoral interests to be protected at all costs? And if the answer is the latter, what of the mantra that the market knows best?
Business leaders are typically outspoken against government interventions in the economy which, whatever short-term benefits they may bring, often represent a distortion in the economy that in the long term usually does not represent the best interests of the whole.
The FBT treatment of leased company cars was originally intended as a pillar of support for Australia’s car manufacturing industry, but with that industry now on its knees, the FBT concessions on salary-sacrifice cars appear to have outlived their usefulness. It’s hard to argue that those concessions, as welcome as they are by employees who salary sacrifice, are a form of middle-class welfare.
The suddenness of the proposed changes, and the lack of industry consultation, are causes for concern that bring to mind the criticisms of “policy on the run” that the business community regularly levelled at Prime Minister Kevin Rudd during his first term in office.
But with Rudd only recently returned to the prime ministership and the federal election in the offing, there is a case to be made for the suddenness of the decision. As the salary-packaging industry’s campaign unfolds, business leaders also have some soul searching to do: is Rudd’s FBT decision the kind of decision that business should welcome? And will business leaders say so?
Former Treasury deputy secretary Mike Callaghan has called on governments to make tough decisions about spending and economic reform, and for the public and the business community to be prepared for such decisions.
“It’s a tough business in government and it does require leadership and tough decisions,” he told AFR Weekend.
“You’re looking at the period ahead when you do need to restore the long-term fiscal position [and] there are going to have to be what you might call more short-term losers if you want to improve the budget situation.”
Callaghan was not referring to the FBT decision, but he easily could have been.
Business leaders and business peak bodies have been mostly silent on the FBT decision. The Australian Industry Group, for example, welcomed the government’s decision to overturn the carbon tax, but the group’s chief executive, Innes Willox, hedged his bets: “There are very serious concerns about the industry impact and the additional compliance costs of the proposed change to the tax treatment of cars.”
The Business Council of Australia has recently added its voice for “decisive, real action” from the federal government on economic policy and in particular on improving productivity. BCA president Tony Shepherd has also called for greater involvement of all relevant parties in the productivity debate.
The salary-packaging industry campaign provides the ideal opportunity for business leaders to buy in: where does business, over and above those sectors immediately affected, stand on the FBT changes? Does it support the continuation of a tax concession that may be characterised as an unnecessary market intrusion that benefits only a relatively small segment of the population? Or does scrapping the tax, while inevitably causing short-term pain, represent precisely what the economy needs as looming threats cast a long, menacing shadow?
There is nothing inherently correct or necessary about the FBT on salary-packaged cars. The government would argue that it is taking decisive action on a tax which has outlived its usefulness while securing a responsible budget position for the future.
It is time for business leaders, particularly those business leaders who insist that the government must be prepared to take tough decisions, to tell us where they stand on the removal of the FBT concessions on company cars.