Fringe benefits tax just another prop for ailing car industry: Keane

As it turns out, the best part about Prime Minister Kevin Rudd’s announcement this week of a shift to an emissions trading scheme has nothing to do with a carbon price: the vehicle fringe benefits tax measure aimed at partly funding it has shone yet more light on the extraordinary sense of entitlement of the automotive sector.

Not merely does the sector feel no shame in demanding hundreds of millions of dollars in extra assistance in order to continue manufacturing here – exhibit A, US multinational General Motors demanding another quarter of a billion dollars in handouts last week – but it insists the perpetuation of a misapplied tax exemption is critical to its survival.

The FBT change proposed by the government will require anyone using a car provided by their employer, or via a lease, under contracts that commence after yesterday, to justify the extent to which the vehicle is used for business purposes in order to claim an FBT exemption; the current formula-based method will be dumped — although it will continue for vehicles operated under existing contracts.

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.

While some in the industry tried to talk this up as a protectionist measure, with government and fleet buyers a key source of purchases for Australian vehicles, much and probably most of the benefits flow offshore.

In recent years, fleet buyers, both in government and the private sector, have shifted away from locally-manufactured vehicles, with some sectors like local government now overwhelmingly import buyers. Last December, the federal government appointed former Ford executive William Angove to the new role of boosting fleet purchases of locally-made vehicles.

Nor is this exactly a bad time to remove taxpayer-funded support for new car sales. According to ABS trend data, passenger vehicles sales have come off their late 2012 peak but are still near those historic highs. SUV sales reached their highest ever level in June.

The remarkable cost of supporting the car industry is testament to how deeply that sector has sunk its claws into political life, with manufacturing unions to push the ALP and transnational motor companies, the finance sector and local car retailers to push the Coalition to keep the spigot of taxpayer dollars open, while big manufacturers like General Motors complain about high production costs and demand that their workers take a pay cut.

The return of Kim Carr as Industry Minister, and Rudd’s notorious claim that he doesn’t want to lead a country that doesn’t make things, appeared to set the scene for a swing back to greater manufacturing support. But, perhaps by accident, instead Rudd Mark 2 has proposed the removal of yet another prop of the elaborate funding structure that makes Australia’s automotive sector not a legitimate stand-alone industry but a hybrid, heavily dependent on the taxpayer for life support.

This article first appeared on Crikey.