A tax break story we've heard before and the sky did not fall in
Date
July 19, 2013
The Coalition will oppose changes to fringe benefits tax on salary-sacrificed cars.
If you're older than you'd prefer, you might remember the tax that was going to shut down Australia's restaurants. In 1985 the Hawke government introduced sweeping tax reforms which, among other things, introduced the fringe benefits tax, and applied it to restaurant meals.
Restauranteurs went bananas. Many of their customers were businessmen taking clients, friends or colleagues to long lunches or dinners, and writing off the cost against tax as a business expense. No, it isn't, the government said; it's a fringe benefit of the job, and should be taxed as such.
We were told it would be a disaster: restaurants would shut down, waiters and kitchen hands would be thrown out of work, the economy would slump. Then opposition leader John Howard pledged that the Coalition would repeal the FBT ''lock, stock and barrel''.
Prime minister Bob Hawke and treasurer Paul Keating held firm. The tax came in. Restaurants did not shut down. People still went out to eat; the difference was that other taxpayers were no longer sharing the bill.
Activity at hotels and restaurants grew 21 per cent in the next four years, doubled in less than 20 years. John Howard became prime minister for 11 years; he never repealed the fringe benefits tax. A tax rort ended with no pain.
We're seeing it all again now. The Rudd government has decided to end the favoured tax treatment of company cars or cars bought through salary sacrifice. The industry and the opposition predict disaster. Opposition Leader Tony Abbott pledges that a Coalition government will abandon the reform.
What are the facts?
First, the change would not stop employees being given company cars, or buying them through salary sacrifice. What it would do is to ensure that they can no longer claim a business tax deduction for private travel.
After April 1, 2014, anyone receiving a new company car or buying one through salary sacrifice would have to keep a log, just for three months every five years, recording when the car was used for business and when it was used privately.
This option already exists, and is used by a third of employers offering company cars or salary sacrifice. What would change is that after an eight-month grace period, it would be the only option.
Opponents say it will mean endless red tape and record-keeping. No, says the government: there are now apps that connect to your GPS and mobile phone that keep the records for you, and transmit them to your pay office.
And, obviously, people will choose to use three-month period when they maximise their business use.
Would it hurt the leasing industry? Almost certainly: after April 2014, they would no longer have a tax break to give people an incentive to buy their product. They would have to offer the technology that makes records easy to keep, and find other edges to keep them ahead of car dealers.
But people would still buy cars. Maybe fewer people would buy new cars, and instead buy low-mileage used cars. Maybe some would buy cheaper new cars. Those who use their cars a lot for business would probably stick with company or salary-sacrificed cars and keep records once every five years.
Would it hurt local car manufacturing? Almost certainly: the industry says more than a third of vehicles sold to business or through salary sacrifice are Australian-made – as against fewer than one in 10 vehicles sold privately. Anything that shifts demand from business to individuals would hurt local manufacturers.
The truth is, no one knows what the impact would be, no more than they did in 1985. But the Victorian government's preliminary estimate that the tax change would cost local manufacturers 10,000 sales a year, cutting sales by about 8 per cent, sounds plausible. Should we therefore scuttle the reform?
Not if you believe Treasury's estimates. The total subsidies to the Australian car industry are just over $400 million a year. The average cost of the salary sacifice tax break is $800 million a year. If you want to help local car manufacturing, there are far better ways to do it to give a tax break to people to mostly buy foreign-made cars.
You can't blame anyone for taking up a tax break that's on offer. And you can't blame a government for recognising a bad tax break and shutting it down. Remember: those who pay for tax breaks are other taxpayers.
Read more: http://www.theage.com.au/federal-politics/political-opinion/a-tax-break-story-weve-heard-before-and-the-sky-did-not-fall-in-20130719-2q997.html#ixzz2ZYlWmZkR
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The Tax That Was Going To Shut Restaurants. (Read 567 times)
