Australia’s FBT Changes to Hurt Middle and Lower Income Employees With Cars Most: UK Expert

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UK car guru, Colin Tourick says Australian Labor Government's proposed FBT changes will adversely impact average working families and businesses alike. Fleetcare has more...

Middle and lower income employees with business-use cars will be disproportionately penalised by the Australian Labor Government’s FBT changes, according to UK car guru, Professor Colin Tourick. Prof. Tourick, who is Visiting Professor at the Centre for Automotive Management at the University of Buckingham Business School is also predicting that, as the impact of the FBT changes begins to be felt, many government employees will see their net incomes fall. “Will they just accept this, or will they clamour for pay rises to offset this extra cost?” he asks.

In the past week, the Victorian Minister of Health has advised health union leaders that their members with car leases will lose up to $3,000 a year in benefits or a pay cut of up to 5% as a result of the new changes (http://www.news.com.au/national-news/victoria/napthine-government-urges-victorian-unions-to-protest-changes-to-the-fbt/story-fnii5sms-1226702287133 - Herald Sun, August 22, 2013). In the Victorian health system alone, more than 5,000 health service staff and 600 paramedics will be worse off under the changes.

Middle and lower income earners in the not-for-profit sector are also among the first in the firing line. Many charities use salary-packaging, including use of a car, as a way to compensate otherwise lower than average pay rates, to attract talented employees.

Prof Tourick observes: “In the face of higher tax bills, people will behave rationally and will look for ways to reduce their tax costs. Many will abandon the idea of taking a salary-packaged car and will opt instead to buy a used car. This will bring a host of undesirable consequences. Older cars pollute more and are off the road more frequently for maintenance events. Privately-owned cars are serviced less frequently and employees have to remember to insure then – for business use and not just personal use. Businesses will have to manage those risks so will be faced with additional costs.”

With Australia’s Federal election just over one week away, the majority of affected drivers are only vaguely aware of how the FBT changes will affect them – or are perhaps hoping that, if there is a change of Government, they won’t go ahead. The Opposition Liberal party, the broad equivalent of UK’s Conservative Party, has said it will not implement the FBT changes if it wins power on Sept 7th.

In a survey of managers responsible for company fleets, recently conducted by Fleetcare, Australia’s largest independent fleet management company (http://www.fleetcare.com.au), 61% of respondents said that they hadn’t considered how much more their company would be paying in FBT per vehicle. Remarking on the finding, Fleetcare Chief Executive Nigel Malcolm said, “If three out of five people responsible for managing company fleets are still getting to grips with what the FBT changes mean, it’s probably safe to say that the vast majority of company car drivers are also pretty much in the dark, or hoping the whole thing will go away. The truth is that this is a significant change to the tax system, the impact of which is being concealed in the noise of an election. The Government needed to fill a budget hole created by scrapping the unpopular carbon tax, and they chose to take the money from companies who provide cars for their employees, and from employees themselves. But right now, most of the affected companies and the employees have no idea quite how much worse off they will be.”

Prof Tourick says that the way in which the FBT changes were announced was ‘deficient in a number of regards. In the UK, even when much more modest legislative changes are proposed, businesses and the public are given plenty of notice so they can plan. For example, an employee taking a new company car today knows how much fringe benefit they will be taxed on for each of the next four years.’

Like most elections Australia’s Federal election is about many contentious issues including managing the country’s post-resource-boom economy, asylum seekers, education and health. Fringe Benefits Tax may not be top of mind for many voters. But the reality, for a large number of middle and lower income earners, is that the most immediate difference they notice could arise directly as a result of their company provided or salary-packaged car.

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Georgie Gallagher
Fleetcare
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