Kevin Rudd’s overhaul of the fringe benefits tax (FBT) exemption for vehicles may improve the quality of the air Australians breathe, but it is likely to suck the life out of Australia’s ailing car manufacturing industry.

This is the assertion of Griffith Business School researcher Anna Mortimore who argues that FBT reform could be tailored to instigate change in behaviour of car buyers and a further move towards low emission vehicles.

“On the face of it, this is a good decision in terms of emissions,” she said. “The car benefit regime has been internationally recognised as a measure that not only increases the number of vehicles, but which also encourages the acquisition of higher emitting bigger vehicles.

“However, on closer inspection, the benefits are not as wide ranging. The (FBT) statutory method was introduced in the first place to assist the car industry under the Button Plan and its removal will directly impact on the car industry.”

Ms Mortimore said her research showed that FBT supported the car industry in Australia to the tune of $1.7 billion per year. She highlighted the 2009 conclusion by a Senate Standing Committee that the subsidy was worth about $10,000 in securing a consumer’s decision to buy Australian-made vehicles instead of importing.

She also pointed to OECD advice on FBT reform which stated it was “essential to consider the broader sectoral and macroeconomic context of a particular subsidy” such as its impact on the local car industry. Removal of a subsidy without considering its context could have the opposite effect to that which was intended, it said.

[READ Anna Mortimore’s article in The Conversation here.]

“What an amazing decision made by the government,” Ms Mortimore said. “It appears to be making policy decisions on the run. This kind of decision requires a review that would have taken months .I find it hard to believe that there would have been consultation with the car manufacturers and they would have agreed to this reform. They must be most concerned. Removing the tax will have significant ramifications on industrial and economic policy. It may lead to further job losses.

“In terms of environmental policy, axing the statutory formula method will indirectly reduce road transport emissions. Australian taxpayers will no longer be subsidising the cost of high emitting vehicles each year, which are mostly acquired under the FBT statutory formula method.”

Research by Anna Mortimore shows the FBT statutory formula method increases the number of cars being purchased, which are mostly bigger and higher-emitting vehicles. “Therefore removing this subsidy will no longer make it attractive to acquire such vehicles.”

“However Australia has no environmental or taxation policy measures to reduce road transport emissions. This can only be achieved through improvements in vehicle technology, and is dependent on increasing the supply of and demand for low emission vehicles.

“Reforming the current statutory formula car benefit system on the basis of vehicles’ carbon emissions could have been an effective instrument in encouraging behavioural change toward low emission vehicles. Such a reform in the UK in 2002 proved to be extremely successful.”

Reduce emissions

Ms Mortimore added that such a reform could have assisted local car manufacturers in making the transition to lower carbon vehicles, thereby securing the future of the local car industry and employment for its employees. “This is no longer the case.”