FBT changes spark outcry

Mercedes-Benz spokesman criticises "zero consultation" and disregard for flow-on effects

The government's unforeseen announcement it would reform the Fringe Benefits Tax (FBT) on motor cars has drawn fire from several quarters.

Aiming to raise $1.8 billion, the government proposes to rescind the previous statutory method of calculating the FBT. That method delivered an effective concession based on the assumption that just 20 per cent of vehicle use is for private purposes. Under the new system users would need to keep a log book to substantiate (or refute) that percentage of private use. Should the logbook reveal, in fact, that private use is more than 20 per cent, the employee will naturally pay more tax.

In the real world that will likely affect the majority of company car drivers and employees making a pre-tax salary sacrifice to buy a car on novated lease – and subject to FBT as a consequence. In some cases, conceivably, the added impost may erode the tax benefit to the point where the employee pays more in tax than he or she would by taking the total salary package in PAYG form.

There are many potential repercussions arising out of the tax change, says David McCarthy, Senior Manager for Corporate Communications at Mercedes-Benz Australia. Already a company well known in the business of providing motor vehicle finance to employees, McMillan Shakespeare Limited, has placed its share trading on hold in response to the government announcement, but McCarthy also says that the new system will hurt charities and non-profit organisations, which are exempted from the FBT for up to $9000.

"The impact of this is very widespread, and there's a misconception that it is the big end of town. It is not. Charities, for example, and not-for-profits... their employees get an amount up to $9000 a year free of fringe benefits tax...

"They have a number of vehicles that they use to deliver the services that they provide. Part of [the workers' entitlements] is that they will get the use of that car as well. Now, whether they have the use of that car as part of their salary packaging or as part of their job isn't the issue. The issue is that this is going to significantly impact on the costs of running their organisations, and they don't have the ability to put a price up or whatever. They're working on extremely tight budgets – and this is going to directly affect their ability to deliver services.

"If that was an intended consequence, that's a bit of a worry."

McCarthy says the new system creates problems for Mercedes-Benz as an employer, as well as a supplier of cars to the retail market. The prestige importer employs "a thousand" workers, and many of them do take advantage of the offer of a company car or a novated lease through salary sacrifice. In that sense Benz has a two-fold grievance, but the added administrative cost to the company's payroll section is something not exclusive to car companies – and it will reduce productivity in all sorts of industries, far and wide.

"Whilst an argument can always be made that perhaps there should be some changes, a bit of consultation would have been helpful. It is Luxury Car Tax 'Groundhog Day'," he said. McCarthy has long been an outspoken opponent of the Rudd government's changes to the Luxury Car Tax, but his opposition to the changes in both taxes is founded on the government's propensity to implement these changes without warning, without mandate and without consideration of all the relevant facts.

"Imagine the AFL grand final at half time; the umpire comes onto the field and says: 'OK guys, we're now playing soccer'," he offered as an analogy.

"It's the lack of consultation and the lack of understanding of the implications that is our biggest concern. As a business we have to plan years ahead."

That refers to the company's payroll administration that would bear the brunt of implementing and policing the new system on behalf of the government. The revised system is contingent on drivers maintaining an accurate log book. New federal treasurer Chris Bowen has indicated that smartphone apps would take much of the administrative pain out of maintaining a log of distances travelled, but McCarthy is certain that it will be onerous for employees and each company's accounting staff alike.

"You're talking about a level of compliance and detail that is significant. It's a huge impost. The record-keeping that's going to be associated with this is significant. That adds costs, it reduces productivity and it's basically an impost on business... You're changing the carbon tax, but you're replacing the revenue [lost] with something else."

But at the end of the day, it's the customer that will pay for the revised system – and those who will pay most, in relative terms, are not captains of industry or cricket icons. They're the archetypal man in the street.

"That's what the story is," says McCarthy, "it's not people driving around in S-Classes, it's people driving around in A-Class, B-Class, C-Class, Commodore, Mazda3... all that sort of thing, everyday working people.

"The government has not considered this."

What the industry groups and associations are saying

Automotive industry interest groups throughout the country have lashed out at the federal government's reforms to the Fringe Benefits Tax (FBT).

Once word got out that the government planned to raise $1.8 billion through the FBT – to offset part of the $3.8 billion lost to a lower carbon price – the FCAI, AAA and VACC immediately went on the attack.

Representing the car companies of Australia, the FCAI (Federal Chamber of Automotive Industries) led the way. Chief Executive Tony Weber was quoted in a press release denouncing the government for its failure to consult the industry.

“This change affects all car sales in Australia, both imports and domestically manufactured. And the effects will flow right through the industry, including to dealerships and service centres,” Weber said.

“I want to know if the Government truly understands the consequences of this decision, and why the industry was not consulted on such a significant change.

“The FCAI is yet to do precise calculations but we estimate, from today, this could impact on around a third of new car sales.

“I fear what this means for domestic manufacturing and I am urgently seeking meetings with the Government to encourage them to reconsider this decision.”

The FCAI's sentiments were echoed by VACC (Victorian Automobile Chamber of Commerce) in another press release. Beyond the financial impost of the change, highlighted by the FCAI, the VACC has also mounted an argument that it dumps a heavy bureaucratic burden on the drivers of company cars (and 'user choosers' – those who have arranged novated leases), and would affect productivity as a consequence.

“Labor has introduced a new policy, which will have a significant impact on the automotive industry, without consulting us. Not for the first time, VACC members and members of the automotive industry are grappling for information and trying to second guess the changes they’ll have to make,” VACC Executive Director, David Purchase, said.

“We require more details, but early indications are that the FBT changes will affect new car sales, as buyers of company cars will now have to invest considerably more time in log books and paper work. We have encouraged Governments to reduce red tape and free small business owners and their employees from unnecessary red tape compliance, however, it appears that drivers of company cars will now have to keep a record of every journey they make.”

Speaking on behalf of consumers and national motoring associations was Andrew McKellar, Executive Director of the AAA (Australian Automobile Association). As the FCAI and VACC had also observed, it's the government's lack of consultation that has wounded the most.

“Australia’s motoring clubs were, like many organisations, left stumped yesterday by the Government’s announcement that it was changing the FBT rules, effective immediately,” McKellar was quoted saying in a press release.

“This decision, without any consultation, will impact the family budget for hundreds of thousands of households, all of whom are already being hit with higher costs, including petrol prices.

“Our concern is that the lack of consultation by the Government, and no detail on the likely impact of these changes, will only cause uncertainty and disruption in the financing and motoring sector and for individuals involved in leasing a vehicle.

“Motorists already pay their fair share to the Budget bottom line and should not be targeted to help minimise the Budget impact of other policy decisions.

“These changes are a tax on safety: this has to have an impact on a key segment of the new car market. This will likely cause some buyers to defer the purchase of a new, safer car.”

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FBT changes spark outcry

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