4 August 2013
David Bradbury MP
Parliament House Office
Canberra, ACT 2600
Dear Minister Bradbury,
RE: REMOVAL OF THE STATUTORY FORMULA FOR MOTOR VEHICLE FRINGE BENEFITS
On Friday 2 August, we met with staff from the Department of Treasury to discuss the recent removal of the motor vehicle fringe benefit statutory formula. Our discussions with the Treasury officials were productive and I thank you for arranging the meeting.
It became apparent through our discussion that modelling undertaken by the Treasury had not considered the likely impact on motor vehicle sales and any associated flow on impact through the broader supply chain with direct consequences for economic activity, tax receipts and employment. Authoritative industry bodies quote a likely reduction in new motor vehicle sales in excess of 10% over the short to medium term. These numbers are consistent with the estimated impact as modelled by respected economists and included as part of the industry’s submissions to the Henry Tax Review which appear to have been ignored. There has already been a significant diminution in new motor vehicle sales with July recording a reduction in the growth trend. A recent survey of motor vehicle dealerships by the Australian Motor Industry Federation showed 79% of dealerships within the respondent group had been negatively impacted through either a loss or cancellation of orders and as a result, 64% would be forced to sack staff.
It was also evident that the underlying analysis of salary sacrifice benefit recipients has been based on an unrepresentative and small dataset. The Government’s assertion that two thirds of those affected earn more than $100,000 per annum is not consistent with the industry’s extensive data (100,000 vehicle and employee details) which shows that the majority of employees earn under $100,000. This discrepancy will also impact the forward estimate savings due to the higher marginal tax rates applied by Treasury when you consider a high percentage of employees negatively impacted actually earn under $80,000. In addition, more than one third of the vehicles are Ford, Holden or Toyota’s and less than 5% are BMW, Audi, Lexus or Mercedes-Benz models.
Two of the sources of information identified by Treasury officials for this analysis included the ATO’s income tax and FBT return dataset together with the Australia Bureau of Statistics Survey of Income and Housing (SIH) and the Household Expenditure Survey (HES), 2009-10. In respect to the ATO income tax and company FBT return dataset, it is clear that the data is not accurate given albeit for a small number of employees, the ATO does not have a complete dataset connecting the employee’s income and the receipt of a motor vehicle fringe benefit. Motor vehicle fringe benefit information is not identified at an employee record level rather it is consolidated into a single figure within the organisation’s FBT return. Tax and Accounting peak bodies confirm that the ATO does not possess sufficient records to have determined that two thirds of recipients earn more than $100,000.
The Australia Bureau of Statistics Survey of Income and Housing (SIH) and the Household Expenditure Survey (HES), 2009-10 is based on a very small sample of 18,071 households, or less than 15,000 once pensioners are excluded, of which we would expect the number of households who salary sacrifice a motor vehicle not to exceed 800 versus the industry’s data set of 100,000.
We call on the Government to publically acknowledge the unintended consequences of this policy and to immediately reverse the decision to remove the statutory formula. All the information available to us indicates that the Government’s decision has been based on insufficient information and a lack of understanding of the consequences of removing the statutory fraction. Should this reform come to pass there will be significant and long lasting consequences for the motor vehicle industry at large including large scale job losses, further stress to the household budgets for hundreds of thousands of working families and material impacts to a strained manufacturing sector.
On behalf of our ASPIA member base and the broader motor vehicle industry, I would also like to take this opportunity to register my grave disappointment in the Treasurer’s decision to reject our meeting request despite a commitment to the contrary from the Prime Minister.
cc. Mr Kevin Rudd, Prime Minister
Mr Chris Bowen, Treasurer
Senator Kim Carr