Chapter 5
The role of the Australian Government
5.1
This chapter reviews arguments put in submissions about a possible
greater role for the Australian Government in developing public transport. All
submissions argued that the Australian Government should take a greater role.
Past Australian Government involvement in public transport
5.2
Historically the Australian Government has had little involvement in
urban public transport. In the 30 years to 2004 it spent $58 billion on roads,
$2.2 billion on rail, and $1.5 billion on public transport. The Australian
Government has had little or no role in policy or regulatory reform or public
and passenger transport services.[1]
5.3
The most recent significant Australian Government involvement in urban
affairs or public transport was in the early 1990s, through a short-lived Urban
Public Transport Program, and through the Better Cities program. More recently
the Australian Government has had minor involvement by assisting 'Travelsmart'
behavioural change programs, however this funding ended in June 2009.
Urban Public Transport Program
1990-1993
5.4
The Urban Public Transport (UPT) program aimed to improve public
transport in the outer metropolitan regions of the capital cities and major
provincial centres. Projects were undertaken by state and territory governments
with Commonwealth funding. Over $220 million was provided under the program
between 1990 and 1993.
5.5
Almost two-thirds of the 148 projects received less than $1 million and
90 per cent received funding of less than $5 million. Projects were mostly
measures such as interchanges, rail station upgrading, and bus priority
measures. A few projects were of a more major engineering character such as
contribution to rail duplication or electrification.[2]
Better Cities program 1991-1996
5.6
The Better Cities Program (originally 'Building Better Cities') ran from
1991 to 1996. Commonwealth funding contributed to improvements in urban areas
identified in area strategies. These included redeveloping inner city
precincts, building and refurbishing housing, building and upgrading railways
and transport interchanges, new light rail systems, new water management
infrastructure, as well as developing under-used government land. Construction
and development activity was carried out by the States and Territories, which
also contributed financially. Over six years the Australian Government provided
$816 million and the states/territories $1,519 million.
5.7
Many projects focussed on urban renewal (for example, Newcastle waterfront,
East Perth). Transport projects included contribution to the Gold Coast railway
(opened 1996-98); to the Sydney light rail line (opened 1997-2000); and to the
Parramatta 'Y-link' (which allowed trains to run directly from Parramatta to
Liverpool, opened 1996).
5.8
A planned second tranche (Building Better Cities Mark 2) was approved in
the 1995 budget, but was cancelled after the election of the Howard government
in 1996.[3]
5.9
A 1995 evaluation report was generally positive:
The availability for Commonwealth funding for the Area
Strategies has enabled many desirable projects to be undertaken years before
they could otherwise have been progressed... Projects which might otherwise have
been designed from a narrower functional perspective have instead been planned
on a cross-agency basis with an emphasis on improved integration of facilities
and services and maximising community benefit. State, Territory and Local
Government, business and community assessments of the Area Strategies are
generally positive.[4]
Travelsmart
5.10
'Travelsmart' refers to activities to promote behavioural change in
favour of less car use by direct approach to targeted households - for example,
to provide information about public transport services. Larger projects
routinely show decreases in car use of 4-15 per cent, and increased walking,
cycling and public transport use. Results are extremely cost-effective compared
with public transport infrastructure projects. Evaluation of Travelsmart
projects in Western Australia found a community benefit of $30 for every $1
invested.[5]
5.11
From 2003 to 2007 the Australian Government contributed to Travelsmart
projects through the Greenhouse Gas Abatement Program (GGAP). 38 projects in
Victoria, Queensland, South Australia and the ACT were part funded with $6.4
million. This funding ended with the Greenhouse Gas Abatement Program.[6]
5.12
The Western Australian Government advised that 'despite the success of
the GGAP co-funded program the Department of Environment, Water, Heritage and
the Arts advised that, after June 2009, it will not be able to provide any
funding or provide a coordination role for work on travel behaviour change.... it
is unlikely that the national transport portfolio will take on this task as the
Department of Infrastructure, Transport, Regional Development and Local
Government (DITRDLG) does not appear to see a role for itself in this area.'[7]
Recommendation 1
5.13
That the Commonwealth recognise the cost-effectiveness of the
'Travelsmart' behaviour change program and consider reinstating funding for it
from an appropriate department.
Recent Australian Government policy
on public transport
5.14
Apart from its small contribution to Travelsmart programs through the
Environment portfolio, the Australian Government's policy in recent years has
been that urban public transport is the responsibility of the states. The 2004
Auslink White Paper, which established the current system of Australian
Government land transport funding, said:
The Australian Government’s position on public transport is
clear: it is primarily a State and Territory government responsibility. The
Australian Government considers that State and Territory governments are best
placed to deal with the metropolitan and local complexities of public
transport. The Australian Government’s role has focused, and will continue to
focus, on interstate connectivity and trade and commerce between the States and
with other nations.[8]
5.15
However the Australian Government has recently signalled a renewed
interest in urban policy by establishing a Major Cities Unit in Infrastructure
Australia, the Government's new infrastructure advisory body, 'to identify
opportunities where federal leadership can make a difference to the prosperity
of our cities and the wellbeing of their residents'.[9]
The 2009 budget funded a number of significant urban public transport projects
(mostly rail), with a total commitment of about $4.6 billion, as noted in
paragraph 4.55.
Australian Government contribution
to community transport
5.16
The Australian Government contributes to the joint Commonwealth/State
Home and Community Care program (HACC). This includes a transport component, as
discussed at paragraph 4.67ff. On the evidence it seems that there is potential
to improve the interface between regular public transport and community
transport to ensure the most cost-effective service to the most people. The
Committee recommends that the Department of Health and Ageing, which is
accountable for the efficient use of HACC transport funds, should be mindful of
this in negotiation of future HACC agreements.
Recommendation 2
5.17
The Commonwealth in future negotiation of HACC agreements should
be mindful of -
-
the effectiveness of present community transport services;
-
future transport needs of groups targeted by community
transport;
-
appropriate balance between community transport, regular
public transport and taxis to meet those needs; and
-
appropriate division of responsibilities, actions and funding
to meet those needs.
Submissions on a future Australian Government role
5.18
Almost all submissions argued that the Australian Government should take
a greater role in promoting public transport for the sake of sustainable
cities. The most common reasons put forward were related to climate change,
peak oil and urban congestion, serious issues of national importance that
require a nationally led response.[10]
For example the National Transport Commission said:
Urban congestion is an issue of national importance. When
considering what is 'national' it is no longer sufficient to look at issues
that are Commonwealth responsibilities or those that relate to 'cross-border'
issues. A 'national' issue is one which affects a significant proportion of
Australian. irrespective of where they live. Public and passenger transport
should no longer be considered the domain of one state or local government,.
but an issue which is going to affect the majority of Australians, and our
potential economic growth. Many OECD countries have developed national 'moving
people' strategies, and the increased interest in public and passenger
transport by the Commonwealth, including Infrastructure Australia, is welcome.[11]
5.19
The Western Sydney Regional Organisation of Councils (WSROC) argued that
'the Federal Government is already involved in urban issues but in a piecemeal
and inconsistent way...
...for example, in relation to airports and national highway
and freight corridors, many of which also combine Local, State and Federal responsibilities.
The Commonwealth needs to have a much more strategic and integrated focus to its
engagement in urban areas.[12]
5.20
Mr Litman (Victoria Transport Policy Institute) noted that in North
America highway programs which ostensibly related to regional and interstate
transport have in fact had strong, perhaps unplanned effects on urban transport
systems, since in urban areas the vast majority of motorists on the
'interstate' highway are making urban trips.[13]
The same point could apply in Australia in relation to the urban sections of
the Auslink national network which has been the focus of the Australian
Government's recent road funding.[14]
5.21
Submissions noted that in most developed nations the central government
takes a significant role in public transport planning and funding:
The general Federal position on urban public transport
involvement has been that it is the responsibility of the States. This is
unfortunate since there are clearly important national economic, social and
environmental objectives (see earlier) which public transport can assist with.
This position is also in stark contrast with the position of other countries...
Australia is unique in being the only OECD country which does not have some
Federal role in funding and supporting public transport.[15]
5.22
The contrast between the past disinterest of the Australian Government,
and the US Federal government's urban transit initiatives, was much noted.[16]
The US Federal Government funds public transport through SAFETEA-LU, which also
funds roads.[17]
Funding includes capital support for startup projects, and some support of
recurrent operating costs. 15.5% of gasoline tax is hypothecated to the Mass
Transit Account. The current program provides $US52.6 billion for urban transit
over 2004-2009, or about $US9 billion per year. Weighting for population this
would be equivalent to the Australian government spending about $A800 million per
year.[18]
5.23
As to how the Australian Government should be involved, the main themes in
submissions were:
-
need for national leadership and coordination;
-
need for a national research body; and
-
Australian government funding of public transport and active
transport.
National leadership for best practice transport planning
5.24
Submissions argued that there should be greater national coordination of
transport policy and greater Australian Government involvement in promoting
best practice transport planning for national goals such as sustainable cities
and greenhouse abatement.
5.25
For example, the National Transport Commission said that 'potential
opportunities for a more coordinated national approach to public and passenger
transport could include...'
-
national objectives and strategies for people movement, linked to regional
strategies to underpin the next generation of investment in passenger
transport;
-
best
practice transport governance structures - for regulators, government agencies
and service providers across all modes - to ensure urban transport works more
effectively together as an integrated system;
-
minimum
standards for transport access;
-
a
common technology platform for integrating 'smart card' technology on any
transport mode in any city...[19]
5.26
The National Transport Commission in early 2008 provided wide-ranging
advice to the Australian Transport Council (ATC - Australian and
state/territory transport ministers) on a 'national transport policy
framework'. On 28 February 2008 transport ministers agreed that 'there is a need
for a national approach to transport policy'. Since then the ATC has affirmed
the joint development with the Local Government and Planning Ministers Council
of guidelines for integrating transport and landuse planning, especially in
outer urban locations. The ATC has agreed to implement a future work agenda
arising from the NTC's proposal through a structure of subcommittees of the
Standing Committee on Transport.[20]
Committee comment
5.27
The committee agrees that there is a need for a more coordinated approach
to urban transport planning and supports the ATC's initiatives in this regard.
Nationally coordinated public transport research
5.28
Submissions argued that there is a need for greater national
coordination and support of research relating to best practice public transport
planning and operations. Prof. Currie noted a lack of interstate knowledge
sharing, leading to duplication of research and an emphasis on reactive rather
than proactive research:
Because planning and management is State based, there is a
tendency for localised planning with a lack of cross border cooperation and
sharing of knowledge.... Road authorities have solved this problem through the
development of the Austroads national group which is supported by the Federal
Government. No such body exists for public transport which is again
disadvantaged compared to the roads sector. There is a clear role for the
Federal Government to address this issue.[21]
5.29
Again Australia performs poorly compared with its peers:
Yet again this problem does not surface in our comparable
overseas partners. Europe, like the United States is encouraging an active
development and sharing of knowledge about managing and planning public
transport systems on a national and trans-national scale.... [In the USA] SAFETY-LU
includes over $US 373M to undertake research in public transport (2004-2009).[22]
5.30
Similarly the Bus Industry Confederation (BIC) regretted that there is
no peak entity for public transport related research, at the the level of
technical detail which is normal for roads:
Transport research is very poorly funded in Australia,
relative to the size of the sector (e.g. compared to the multitude of such
institutions in agriculture). In particular, there is no peak entity that leads
research in public transport. Several university institutes undertake research
in the field and there are two chairs of public transport that have been
established in recent years. However, Australia has no public transport
equivalent to Austroads.[23]
5.31
The National Transport Commission suggested as a short to medium term priority
'establish a national transport research board.... this will include facilitating
a collaborative approach to transport research in conjunction with Austroads,
BITRE, ARRB, Rail CRC and university centres.'[24]
The BIC suggest that the Australian Government 'should establish an Australian
Transport Research Board (similar to the US Transportation Research Board,
scaled down), to be the peak body co‐ordinating
Australian transport research. The agency should have a sufficient budget to be
able to support original research that assists development of public passenger
transport in both urban and regional Australia'.[25]
5.32
The Australian Transport Council (ATC) has .accepted that 'there is a
need to support a new National Transport Policy with a collaborative strategic
research agenda that looked beyond a modal focus.' Minister agreed to examine
whether existing relevant bodies could take this role or whether a new body is
needed.[26]
Committee comment
5.33
The committee agrees that there is a need for a national transport
research agency whose remit includes detailed technical research on public
transport and active transport. Whether this should be a new body or should be
done by extending the remit of one of the existing bodies (BITRE, Austroads or
ARRB) would be a matter for further consideration.[27]
Recommendation 3
5.34
The Australian Government in consultation with the states/territories
and other stakeholders should establish a national transport research body
suitable to be a national centre for detailed research into world's best
practice public transport and active transport.
A public transport and active transport funding program
5.35
Many submissions urged the Australian Government to establish an ongoing
funding program for public transport and active transport comparable to its
roads programs. For example the Australian Automobile Association said:
The cost of congestion in Australian cities is significant
and demands attention. Currently, Federal and State Governments are investing
billions in road construction that can help to relieve this congestion by
removing bottlenecks and improving links to ports. However, this investment is
not being matched by Commonwealth investment in public transport which is
clearly necessary given the large scale funds required for major projects. Such
investment in public transport can help to improve the overall efficiency of
the transport network, the livability of Australian cities and generate overall
benefits to the nation.[28]
5.36
Submissions suggested types of projects that could be funded. These
could include not only major projects such as those that have been put forward
to Infrastructure Australia, but also many small scale, widespread continuous
improvements (comparable to the smaller roads programs) - for example bus
priority measures (bus lanes, queue jump lanes, traffic light priority),
interchanges, bus stop or train station facilities (real time information, Easy
Access upgrades); park and ride and secure bike parking; cycle paths and bike
storage centres; and Travelsmart behavioural change programs.[29]
5.37
Several submissions suggested a program modelled on the 'Roads to
Recovery' roads program, or suggested that Roads to Recovery funds should be
able to be spent on other transport infrastructure to give councils more
freedom to fund things like public transport interchanges and bike racks.[30]
5.38
It was sometimes unclear whether submitters were suggesting that the Australian
Government should contribute to infrastructure costs only, or also to operating
costs. Most comments implicitly referred to infrastructure. The equivalent US
program does include some funding of operating costs, but the committee was
told that this element is controversial.[31]
5.39
Submissions argued that Travelsmart behavioural change programs should
be supported.[32]
The WA Department for Planning and Infrastructure thought that a national coordination
role is needed for this 'relatively new discipline':
Whilst the CCEEWG has indicated a willingness to consider
national level travel behaviour change initiatives, further progress will
require an on-going coordination and facilitation role at a national level.
Travel behaviour change programs are a relatively new discipline in the
transport sector and are likely to require on-going coordination and funding
support by the Commonwealth Government at least until they can be mainstreamed.[33]
Need for funding to be conditional
on good planning and governance
5.40
Submissions argued that future Australian Government funding for public
transport infrastructure should be conditional on having best practice
integrated management of the whole network; a strategic long term transport
plan with goals, actions and performance criteria detailed enough so that
performance can be monitored over time; and rigorous cost benefit analysis of
project proposals that includes the indirect benefits and those that are hard
to quantify:
Funding should require States to undertake a public planning
process which generates a long term agreed public transport plan as a condition
of receipt of such funds.[34]
The Commonwealth should also continue its encouragement of
detailed cost-benefit analysis to help make those decisions; make sure they are
based on evidence and make sure that they look at the problem and quantify it
before jumping straight to solutions.[35]
5.41
Submissions urged the need for good reporting of outcomes:
Commonwealth requirement for providing funding support for
public transport infrastructure and services should be the preparation and
annual updating of publicly available information on asset stocks and
condition, and on service utilisation in an agreed format..[36]
5.42
In its December 2008 report Infrastructure Australia said:
With the Commonwealth signalling that it might invest in
urban transport systems as a means to boost national productivity, now is the
time for nationwide reform to improve public transport governance.[37]
Committee comment
5.43
The committee agrees that the demand on public transport infrastructure
will continue to rise and require an expansion of its role and capacity in
meeting the commuter task. Nevertheless, public transport has traditionally
been the responsibility of the states and a key element of service delivery
regarding which the voting public quite rightly hold their state governments to
account. Moreover, public transport involves complex urban planning, land use
and development decisions that are best carried out by the states since they
are the closest constitutional level of government to the community. The
Committee does not propose to recommend that this should change.
Recommendation 4
5.44
Commonwealth funding for public transport should only occur in
the context of overall funding for infrastructure projects that meet a strict
merit-base criteria. These include an objective assessment of the broader
community and economic benefits and the degree to which the sponsoring state
government has adopted an integrated, inter-modal, best-practice approach to
transport planning and management. The Commonwealth can only make such
decisions in the context of broader judgements regarding all competing
infrastructure projects that have national significance.
Other matters: suggested tax incentives for public transport
5.45
Many submissions suggested that there should be tax incentives to use
public transport. Tax-exempt fringe benefits, concessionary fringe benefits
taxation, tax deductions or tax rebates were mentioned or noted in
international examples.[38]
5.46
Submissions referred to international examples of tax incentives to
encourage public transport use. For example:
-
In the USA, tax‐exempt
benefits for transit/public transport were introduced 25 years ago. 'By 2002 in
San Francisco, 27% of employers participated and over one‐quarter of weekday
commuter rail riders were transit benefit recipients.
-
In Canada since 2006, riders can claim a tax rebate of 15.5 per
cent of the cost of a monthly or weekly public transport pass.[39]
5.47
COAG in 2006 noted that 'some governments (particularly at the local and
regional government level) have also provided direct financial support to
employers to introduce public transport initiatives for their employees.'[40]
5.48
A 2006 report for the NSW government recommended fringe benefits tax
exemption for public transport benefits, on the grounds that this would
encourage 'buy-in' by employers:
The findings of most studies seem to indicate that countries
that have sought to provide some form of employer sponsored incentive (which is
one of the advantages of an FBT exemption) have been more successful in
achieving a modal shift from private to public transport than those that have
sought to provide broad based tax incentives alone.[41]
5.49
On the other hand, Treasury has previously argued that a tax benefit for
public transport use would seem to be contrary to the fundamental principle of
distinguishing work-related and private expenditure in the tax system:
If you were to start using the fringe benefits tax regime to
provide an incentive for people to use public transport, you would run into an
issue about effectively providing a tax deduction for private expenditure.[42]
Committee comment on tax incentives
for public transport
5.50
In forming a view on this question, some considerations are:
-
An incentive for public transport fares would be contrary to the
fundamental logic of distinguishing work-related and private expenditure in the
tax system. For the sake of a rational tax system this should be given some
weight.
-
In current conditions the quality of public transport service is
much more important than the cost in forming people's travel choices. To
attract new ridership it is more important to make services better than to make
them cheaper. A policy that focuses political attention on making public
transport cheaper, if it takes attention away from the primary need to make it
better, may be counter-productive.[43]
-
On the other hand, measures that show the Government's commitment
to sustainable transport, and encourage 'buy-in' by employers to promote this,
are desirable.
5.51
On balance the committee is not inclined to recommend tax concessions
for public transport at present. However the committee agrees that the likely
benefits should be further investigated.
Recommendation 5
5.52
The Government should investigate options for tax incentives for
public transport including estimating their likely effects on people's travel
behaviour.
5.53
Measures that encourage 'buy-in' by employers to promoting sustainable
transport in their workforces should be encouraged.
Recommendation 6
5.54
Government support for behavioural change programs
('Travelsmart') should include measures to encourage 'buy-in' by employers in
promoting sustainable transport in their workforces.
5.55
The fact that certain taxi travel is exempt from fringe benefits tax,
while similar public transport travel is not exempt, is discussed below
(paragraph 5.93ff).
Other matters: fringe benefits taxation of cars
5.56
Many submissions argued that the concessionary tax treatment of cars as
a fringe benefit (car FBT) should be abolished. They argued that the concession
encourages the use of cars, significantly contributes to urban traffic
congestion and parking problems, and is contrary to widely held goals to
promote public transport and restrain transport greenhouse emissions. They
argued that there is no similar concessionary treatment of public transport
fares, which biases employers to offer car fringe benefits and not public
transport fringe benefits.[44]
5.57
Two issues which should be distinguished, although they are often
confused in comment on car FBT, are:
-
the construction of the statutory formula used to calculate the
tax encourages excess driving in order to reach a threshold distance which
earns a reduction in tax (the 'March rally');
-
the tax is generally concessionary, which distorts economic behaviour
in favour of more car use.
Description of car fringe benefits
tax
5.58
Private use of employer-provided cars is taxed under the Fringe
Benefits Tax Assessment Act 1986. The taxable value is calculated, at the
taxpayer's choice, by recording actual business and private use (the operating
costs method), or by deeming certain proportions of business and private use
using a statutory formula. About 90 per cent of car fringe benefits tax is
calculated by the statutory method.[45]
5.59
The statutory formula deems that the taxable fringe benefit is the base
value of the car times a percentage which varies according to how far the car
is driven in in total (work-related and privately) during the year. The taxable
fringe benefit is less if the car is driven further. The rationale for this
seems to be an assumption that if the car travels further, it is likely that it
has a smaller amount of private use.
5.60
Tax calculated by the statutory formula is concessionary because the
formula underestimates the amount of private use; thus less tax is paid than
would be the case if the cost of the benefit was paid by the employee out of
after tax cash remuneration. The Treasury estimates that the concession (value
of revenue forgone, compared with a benchmark non-concessionary situation) was
worth $1.7 billion in 2008-09, projected to rise to $2.09 billion in 2011-12.[46]
5.61
The number of cars taxed by the statutory formula method officially
appears to be around one million, however this figure, advised by Treasury, is very
unreliable. The Federal Chamber of Automotive Industries (FCAI) estimates that
about 500,000 vehicles incur FBT..[47]
5.62
The car FBT concession is one of the largest tax expenditures outside
superannuation and capital gains tax. It is almost equal to GST exemption of
health supplies ($2.3 billion in 2008-09) or GST exemption of education
supplies ($2.25 billion in 2008-09). It is noteworthy for the unusual
combination of the large tax expenditure with the low reliability of the
estimate.[48]
Car FBT concession considered as
assistance to the Australian car industry
5.63
It appears that concessionary fringe benefits taxation of cars was
adopted to support the Australian car industry, which at the time (1986)
attracted significant government support and provided nearly 85 per cent of car
sales.[49]
Australian-made cars are now only 25 per cent of all car sales, however they
are still a high proportion of fleet (business) sales; and fleet sales are more
likely to be fringe benefits cars.[50]
The 1999 Ralph Review of Business Taxation said, 'The domestic car industry has
argued that any tightening of the formula would damage its sales and encourage
employers to choose cheaper, imported cars.'[51]
The concern appears to be that without the concession there would be little
incentive to offer cars as fringe benefits; and employees left to their own
devices would be more likely to buy imported (in keeping with observed private
buying behaviour). It appears that there is no knowledge of what the behavioural
change might be.
5.64
If the purpose of the concession is to support the Australian car
industry (no other purpose has been suggested), the government for some reason
is reluctant to admit it. When the committee asked Treasury, 'At present, what
is the policy purpose of making FBT of cars concessionary?' Treasury gave an
uninformative answer which avoided the question.[52]
5.65
Concessionary car FBT, considered as a form of assistance to the
Australian car industry, should be seen in context of other government support
for the industry.
5.66
According to the Productivity Commission, in recent years direct
Australian Government assistance to the motor vehicles and parts industry has
been around $600 million per year, mostly through the Automotive
Competitiveness and Investment Scheme (ACIS). Adding the net effect of tariffs
increases the total to $1.2 billion (2007-08). Motor vehicles and parts has an
effective rate of assistance about three times the manufacturing sector
average. This does not include the car FBT concession, which is not mentioned
in the relevant Productivity Commission report.[53]
5.67
On 10 November 2008 the Government announced A New Car Plan for a
Greener Future. This includes a new Automotive Transformation Scheme (grant
assistance of $3.4 billion from 2011 to 2020), a Green Car Innovation Fund
(grant assistance of $1.3 billion over ten years from 2009), and several other
measures whose total cost is very small compared with the first two.[54]
The detailed timing is unclear,[55]
but the average effect will be direct assistance of about $4.8 billion over ten
years, or $480 million per year (not including the net effect of tariffs).
5.68
Thus it appears that the concessionary car FBT at about $1.7 billion per
year, considered as assistance to the car industry, is by far the largest
element of government assistance to the industry. It is effectively a subsidy
of at least $10,000 to secure a consumer's decision to buy Australian instead
of imported. 'At least' should be stressed - the true figure may be much higher,
since it depends on how much the concession actually influences people's
behaviour (the more people who would buy Australian anyway, the greater is the
subsidy taken over each of the buyers whose behaviour is influenced). This
seems to be unknown.[56]
Previous comments on car FBT
5.69
Many previous reports have mentioned this issue or urged reform.[57]
Most recently the Garnaut Climate Change Review (2008) said:
'The current treatment of vehicles and parking spaces
distorts decisions towards private vehicle use and greater demand of transport
overall. These provisions could be improved by: •
ensuring the salary sacrifice arrangements are mode neutral; • amending the statutory
fraction method to ensure it is distance neutral.'[58]
5.70
A consultation paper for the 'Henry' review of the tax system now in
progress said: 'The concessional treatment of car fringe benefits provides a
strong incentive for some employees to take a car as part of their remuneration
package and to skew their consumption toward motor vehicle services...
Most submissions [to this review which mentioned this matter]
oppose a tax system that encourages people to drive more and contribute to
noise and air pollution, greenhouse gas emissions and urban traffic
congestion.''[59]
5.71
The review is now considering car fringe benefits as part of a
wide-ranging review of Australia's tax system.[60]
Issue: the statutory formula
encourages excess driving
5.72
Many submissions noted that the construction of the statutory formula
encourages excess driving simply to reach one of the thresholds (15,000, 25,000
and 40,000km) that earns a lower tax (the 'March rally').
5.73
Since excess driving incurs costs the incentive exists only for drivers
whose 'genuine' mileage is already within striking distance of one of the
thresholds. A 2007 survey of 1,250 fringe benefits cars cars estimated that
about 19 per cent of them had driven further deliberately to reach a threshold.[61]
5.74
The excess driving distance is probably small in proportion to the total
distance travelled by fringe benefits cars. However it involves a significant
proportion of the drivers.
5.75
Submissions (and many previous comments elsewhere, including in motor
industry submissions to the 2008 Bracks review of the automotive industry)
suggested that this perverse incentive could easily be removed in a tax neutral
way, either by increasing the number of distance bands to the point where the
prize for reaching the next threshold becomes too small to be worth trying for,
or by reducing them to one (a flat rate).[62]
Committee comment on excess driving
5.76
The way the statutory formula encourages excess driving is clearly
absurd and contrary to planning and environmental goals to curb the growth of
car traffic in cities. It sends a bad message about the sincerity of the
Government's environmental policies.
5.77
The situation can easily be remedied by adjusting the statutory formula.
5.78
The committee suggests that it would be preferable to increase the
number of distance bands rather than use a flat rate, since a flat rate
advantages cars which are driven further, which should be seen as contrary to
environmental goals to restrain car use.
Recommendation 7
5.79
The Government should amend the car FBT statutory formula to
remove the incentive to drive fringe benefits cars excessively to reach the
next threshold.
Issue: the general effect of
concessionary car FBT
5.80
Concessionary car FBT is widely deplored because it encourages overuse
of cars, which increases the environmental detriments of urban congestion and
pollution and reduces the viability of public transport. However the extent of
the effect appears to be unknown. The Council of Australian Governments (COAG)
in its 2006 review of urban congestion said:
The lack of information on the temporal and spatial impacts
of this measure makes it difficult to make an informed judgement on the extent
to which the FBT concession contributes to congestion.... this is an issue
requiring further consideration.[63]
5.81
In a 2006 survey of Sydneysiders who drive to work, 10 per cent of
respondents cited 'vehicle provided by business' as a reason for driving.
However respondents were offered 12 answers and could give more than one
answer, so the figure may omit people who were actually using a company car
but, in context, did not regard that as a significant reason.[64]
Data from the same survey series found that in 2001 company cars were about 21
per cent of total cars on the road during the morning peak period, but this
does not show how many of them were fringe benefits cars.[65]
5.82
A 2004 Sydney study found that 52 per cent of workers had employer
assistance to travel to work, most of which related to cars, and 17 per cent
reported that the employer 'provides company car'. Those whose car use was
subsidised made more car trips (average 5.89 car trips per day) than those who
were not subsidised (average 4.17 car trips per day).[66]
5.83
Submissions stressed that regardless of the actual amount of driving
involved, the tax concession is bad in principle because it encourages a 'car
culture' in the workplace, and discourages employers from taking initiatives to
encourage public transport use.[67]
Committee comment on concessionary
car FBT
5.84
The committee accepts the submissions that concessionary fringe benefits
taxation of cars encourages a car culture in the workplace, contributes to
traffic congestion, and hinders the take up of public transport. The extent of
these effects is unknown.
5.85
If the Australian Government wishes to assist the Australian car
industry it is entitled to do so (subject of course to any obligations under
international trade agreements that Australia adheres to).[68]
Whether that is appropriate in context of broader industry policy is beyond the
scope of this inquiry.
5.86
Concerns about the environmental and traffic congestion effects of car
FBT are really not about whether a consumer buys an Australian or an imported
car, but about the excessive use of cars.[69]
5.87
In the committee's view the Government should aim to disconnect car
buying from car use as much as possible, so that assistance to buy Australian
(if that is desired) does not encourage excessive car use. Australia should aim
to be more like Europe: in many wealthy European cities the rate of car
ownership is very similar to Australia's, but the rate of car use is much less
- presumably because of better public transport, among other things.
5.88
It is admittedly uncertain how much people's travel behaviour would
change if the concession was removed. The fact that a certain percentage of
cars on the road in peak hours are fringe benefits cars does not mean that if
the concession was ended these cars would disappear. Some of the cars would continue
to be offered as fringe benefits even without a concession, and some of the
people would continue to drive even without a fringe benefits car. However it
is fair to say that at the margin the concession must have some effect in
encouraging car trips which might otherwise be public transport trips.
5.89
It is sometimes said that concessionary car FBT is justified because the
statutory formula reduces compliance costs (compared with the alternative operating
costs method which requires logging actual use).[70]
This is not valid. A statutory formula can be maintained for ease of
compliance, but the concessionary aspect can be removed by adjusting the
details.
5.90
The Committee notes the view of the Federal Chamber of Automotive
Industries (FCAI) in its submission to the current review of Australia's future
tax system:
The FCAI submits that the Review should undertake a detailed
analysis of the impact of the current Statutory Formula on the incentive for
vehicle use. The FCAI urges the Review to evaluate a range of policy options
compared with the status quo of retaining the existing Statutory Formula. In
determining any recommendations, the FCAI urges the Review to consider
carefully the implications for the Australian car industry and to consult
affected stakeholders.[71]
5.91
Given the large amount of revenue forgone ($1.7 billion per year
expected to rise to $2 billion), it is surprising that the Government is
unwilling or unable to say clearly what the purpose of the concession is (see
paragraph 5.64). The Committee considers that the Government should state the
purpose of concessionary FBT of cars more clearly, and investigate the likely
effects of making it less concessionary (noting that whether the tax should be
concessionary, and whether there should be a statutory formula for the sake of
easy compliance, are different questions).
Recommendation 8
5.92
In relation to fringe benefits taxation of cars by the statutory
formula method -
-
the Government should state the purpose of making the tax
concessionary (noting that whether the tax should be concessionary, and whether
there should be a statutory formula for the sake of easy compliance, are
different questions);
-
the Government should investigate and report on how well the
concession is achieving its purpose; and
-
the Government should investigate and report on what the
likely effects on consumer behaviour would be if the concessionary aspect of car
FBT was reduced or removed.
Other motor vehicle related FBT
issues
5.93
Other FBT car-related tax expenditures are:
-
Taxi travel to and from work in certain circumstances is an
exempt benefit (no FBT is paid). Estimated value of the concession is unknown
but thought to be somewhere between $10 million and $100 million. Public
transport fares to and from work are not exempt.[72]
-
Employer-provided car parking is a taxable fringe benefit if
rather complicated and restrictive conditions are met. The benefit is taxed
using statutory formula methods which are concessionary. Estimated value of the
concession in 2007-08 is $11 million.[73]
-
As an exception to the previous point, car parking provided by
certain small business employers, if it is not in a commercial car park, is an
exempt benefit. Estimated value of the concession in 2007-08 is $5 million.[74]
-
Minor, infrequent and irregular private use of a company vehicle
that is not a car is an exempt benefit. Estimated value of the concession is
unknown but thought to be something less than $10 million.[75]
5.94
Fringe benefits which are 'vehicles other than cars' (as defined) are
taxed by different rules. How many vehicles are involved and whether this tax
is concessionary is unknown, as it is not reported separately from 'other
fringe benefits'.[76]
Committee comment on other motor
vehicle related FBT issues
5.95
The exemption for taxi travel to and from work, while public transport
fares are not exempt, is unjustified and inequitable. The scope of FBT
exemptions should be consistent between car transport and public transport.
Recommendation 9
5.96
The Government should change FBT rules so that the scope of
exemptions is consistent between car transport and public transport.
5.97
The committee makes no comment on the other matters as the amounts are
small and the concessions may well be justified by economy of compliance
costs.
Senator Fiona Nash
Chair, Rural and Regional Affairs and Transport References
Committee
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