FBT changes axed as new-car sales drop 3 per cent

The Federal Government has confirmed once and for all it will not go ahead with the Rudd Government’s proposed changes to the Fringe Benefits Tax on company cars. Federal Treasurer Joe Hockey said: "I declare today that the car industry is back open in Australia... because we are not proceeding with Labor’s flawed proposal to change the rules on FBT for motor vehicles."

The car fleet leasing industry welcomed the announcement as new-car sales figures showed a significant slowdown in October, the second month in a row. Industry figures show new-car sales dropped by 3 per cent compared to the same month last year - the biggest monthly fall in 20 months. Fleet sales were down 10 per cent in October, while sales to private buyers were up by 4 per cent.

"There is still some nervousness in the market, hopefully today’s announcement will put people’s minds at ease," said Leigh Penberthy, the president of the Australian Salary Packaging Industry Association.

The former treasurer Wayne Swan believed the proposed FBT changes were a tax on the rich. Former deputy prime minister Anthony Albanese told ABC Radio: "The chances are it’s not a Holden Commodore (driver rorting the current system) it’s a BMW (driver)".

But industry data showed that the average price of a car bought under the scheme was $35,000 and Audis, BMWs and Mercedes-Benzes only accounted for 5 per cent of total leasing market combined.

Industry data also showed more than 80 per cent of people who took out novated leases or salary package deals on new cars were public sector workers such as police, nurses and teachers.

The FBT changes would have added an estimated $4 million to the tax bill of the Salvation Army. The Rudd Government plan was to increase the tax on the personal use of company cars - from the previous flat rate of 20 per cent to one requiring drivers to fill-out log books or risk being taxed 100 per cent.

In reality, had the changes gone ahead it would have more than tripled the FBT on the personal use of company cars, adding $8400 to the tax on a $35,000 company vehicle. The Rudd Government hoped revenue raised from the FBT changes would contribute $1.8 billion towards the cutting of the carbon tax.

"No-one believes that you can actually deliver that initiative without massive compensation to charities, massive compensation to the motor vehicle industry, (and) to dealers carrying that were a massive amount of stock on their floor," said Mr Hockey.

"The compensation ... would have ensured you would not have received over $1.7 billion (in increased tax revenue) but Labor banked that money without even considering the flow-on effect.

"It bled the motor vehicle industry at every point and had a huge negative impact in parts of the economy." The industry also argued that buyers would simply purchase vehicles using other means such as a car allowance, postpone the purchase of a new car or buy an old one.

Fleet sales almost immediately ground to a halt and several salary packaging firms had to sack hundreds of staff. The proposed changes to FBT were announced without warning - or consultation of the industry - on July 16. The previous rules had been in place for 27 years and supported by successive Federal Governments from both sides of politics.

The proposed changes showed that the statutory formula for FBT has been a silent driver of record new-car sales over the past decade. Official new-car sales figures for October, released today, showed the market slid 3.1 per cent compared with the same month last year, but was up 2.6 per cent year-to-date and on-track for another 1.1 million-plus record due to strong sales in the first half of the year.

This reporter is on Twitter: @JoshuaDowling