FBT reform on cars makes playing field level

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.

And that's the inherent warning for Google and its 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 state and federal governments can't afford such irrational largesse much longer.

It's a farcical situation when vehicles driven for 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 those feeding off a policy that randomly advantaged a few and disadvantaged most Australians.

Ignoring the downside of a Mickey Mouse policy has created the impression that countless jobs are to be wantonly destroyed. And that is all the incentive the opposition has required to abandon any sort of principles in favour of a populist stance. In the same manner as its opposition to 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 lurk industry would have you believe there are a 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 offset by the employer's total GST collection obligation - meaning the ATO missed out on 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 hypocritical when it's also promising a white paper review of the tax system that will include consideration of broadening and/or increasing GST.

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 - 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 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.

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.