Fringe Benefits Tax craziness: driving, going nowhere

The old FBT company car rules resulted in some quite ridiculous outcomes. In fact they still do, because apparently they still apply for existing leases.

Basically the rules meant that the further you drive, the less tax you pay. Which means people were strongly encouraged to drive long distances to save money — often driving for no real reason other than to make it into the next distance bracket and get a lower rate.

  • Less than 15,000km travelled a year – 26% FBT liability = 0.26 statutory fraction
  • 15,000 – 24,999km – 20% = 0.2 statutory fraction
  • 25,000 – 40,000 – 11% = 0.11 statutory fraction
  • Over 40,000km travelled in a year – 7% FBT liability = 0.07 statutory fraction.

I don’t know what genius came up with the way the tax laws worked, but really, what an utterly stupid system.

The other day I heard of a friend of a friend who has got her car doing the ultimate: I forget the precise numbers involved, but basically in order to avoid a big tax bill she needs to put thousands of kilometres on the clock by the end of the year.

Rather than spend the week going on a pointless long drive, her mechanic has devised a scheme whereby the car is up on blocks, and is set up so it can drive while stationary. Presumably they’ve put a brick on the accelerator and/or put it into cruise control, and the car is clocking up all those kilometres while not having to have a driver in it.

Quite amusing in a way, but this is the result when there are stupid laws.

Thankfully the tax system has changed, and for new leases signed since May, a more sensible flat rate system applies.

A few thoughts on the carbon scheme

New for June… a Lego house with solar panels on the roof.

Lego house 5771 - with solar panels

Here’s a few thoughts on the carbon scheme announced yesterday:

1. I simply don’t understand how the deniers can continue to be taken seriously by anybody when the vast majority of climate scientists agree there’s a problem that needs to be fixed.

It also seems a peculiar view that the world’s population can continue to burn fossil fuels in huge amounts with no consequences.

2. It’s true that Australia represents only a small fraction of overall global emissions. But people are are watching, and influence is important. On any issue, people look to those who are leading the world. Here’s a small example: while I’m not even sure I agree with it, it turns out that inner-city Melbourne has been hailed as a world leader in pedestrian-friendly streets. If we have any hope at all of convincing others to do something about reducing emissions, we have to get our house in order.

3. The scheme sounds like a pretty good start. If the modelling is right, it’ll have a minimal effect on the overall economy (0.1% of GDP) while providing a good price signal that big companies in particular need to find better ways of doing things.

4. The Opposition’s view on this doesn’t make sense to me. A plan of direct action? There seems to be agreement from economists that this is less efficient than a pricing scheme:

The main finding of the research is that the experience from these six schemes indicates that a general price on carbon emissions is preferable to specific measures. – markets are generally more efficient in encouraging innovation than direct government intervention. — CPA blog

And wouldn’t direct action be far more like a socialist response than letting market forces figure it out? Interesting quote from Alan Kohler about just who wants what:

For what it’s worth, what I think is that the entire scientific, business, bureaucratic classes – all the serious people – are in favour — Alan Kohler on Twitter

Those against carbon pricing are the Shadow Cabinet (and not even all of them) plus some attention-seekers. That’s all. — Alan Kohler on Twitter

5. There’s some niggles. The Australian Railway Association notes that with petrol exempt and heavy (road) vehicles exempt for some time, railways, which should provide a less carbon-intensive way of moving people and freight, will be disadvantaged by not being exempt. One estimate is that it may push up public transport fares by about 2%.

6. The second niggle (but a political reality) is that the scheme is aimed squarely at the big emitters, and with lots of compensation to individuals, there’s little or no incentive to change personal behaviour. Hence, petrol is exempt (but as Phil Hart from ASPO said at a recent PTUA member meeting, including it wouldn’t have made much of a price difference compared to what will happen when peak oil really kicks in).

7. Personally I’m not sure if I’ll end up ahead or behind in economic terms. The Estimator tool on the government web site told me “The household situation described by the information you have entered is not covered by the scenarios used by this Estimator.” Oh well.

From the looks of it, wealthier people can’t count on the tax changes to get all their costs refunded. But then, they are precisely the people who can afford to cover their roofs in solar panels themselves to cut their electricity and gas costs, and cut their direct emissions and costs that way.

8. Niggles aside, I do think it is important to get the ball rolling on reducing emissions, and it does seem to me that putting a price on pollution sends an important market signal that will get that process underway.

Stuff I’ve learnt from Radio National

Often when I listen to Radio National, I’ll learn something I didn’t know before. In this case, I was listening to Saturday Extra last week.

Cutting power consumption?

One item talking about electricity efficiency noted that enormous amounts of money are being invested in distribution networks, instead of being spent on measures to cut consumption (and thus GHG emissions) so you don’t need to upgrade distribution (or at least not as much).

GERALDINE DOOGUE: In the Lend Lease proposal… they say for every dollar spent on demand management, studies have shown the need for investment in energy infrastructure is deferred or reduced by $6.50. …

TOM CAWLEY (Energy Efficiency Council): In California what they’ve done is spent a lot of the money that would be spent on the electricity infrastructure on energy efficiency. And it’s easy to do in California because the power companies are vertically integrated. That is that the same company owns the power station, owns the power lines, and owns the retailers. We don’t have that situation in Australia…

GERALDINE DOOGUE: Keith Orcharison, who’s been a very prominent commentator over many years, writing in Business Spectator last week wrote something I think most of us wouldn’t know: that there will be forty to fifty billion outlayed in the next four to five years on distribution and transmission network systems. …

TOM CAWLEY: There’s no business case for the distributors to spend money on energy efficiency. There’s no structure for them to do that. … The other problem here is that with energy efficiency, you’re talking about [spending] at the point of use. Now, if demand keeps growing, then they need to keep spending money on infrastructure to deliver that energy. The idea is that if we can spend that money at the usage point, then we can reduce the demand.

So basically the electricity industry is structured in such a way that they can’t do the sensible thing and spend those billions on making electricity consumption more efficient; instead they have to assume demand will grow and so all that money goes into building capacity to distribute more power.

That’s just silly.

The mining “super tax”

Who coined the phrase “super tax” in its current context (that is, a proposed 40% tax on “super profits” on the mining sector)? According to a search of Google News (hardly the most scientific method, I know) It appears to have been Joe Hockey, shadow treasurer, quoted in an AAP report on April 24th.

With a nickname like that, it’s no wonder the mining companies joined in.

But it was interesting to hear the Financial Review’s Laura Tingle talking about it — both the negatives and the positives, which haven’t really got an airing:

LAURA TINGLE: The resources we’ve got in the ground are a finite item, they’re owned by all of us, and therefore when people go to buy them, you should try to get a return to the taxpayer for that…

There is a very potent argument to say… well, even if it does slow the pace of resources development a bit, that’s not a bad thing because we’ve got infrastructure problems, skilled workforce problems flowing from the resources boom in the rest of the economy, and it helps even-out the level of activity across the economy, so you don’t have interest rates rising, you don’t have the exchange rate making the rest of business uncompetitive.

(The issues around infrastructure were echoed the other day on 774 when the editor of The Weekly Times, I forget his name, noted that rail transportation of grain had dropped markedly, in part because so many grain hopper carriages are elsewhere serving the mining industry instead.)

And Tingle made the point that the government’s done an absolutely hopeless job attempting to tell people what the benefits are, so it’s not surprising that the Opposition and the mining companies have dominated the debate.

It’d be nice to see this debate become a little less one-sided. It’s hard to gain an informed view when one side is completely dominating.

Thoughts on tax

The tax return

My 2008-09 tax return took ages to come back. What happened to it? An old fashioned IT screwup:

We know some people have experienced delays and frustration caused by our essential systems upgrade. Unfortunately, the size of the systems we deal with means they are incredibly complex. Also, given the importance of the tax and superannuation systems to Australia, we need to ensure the reliability of our processes.

Australian Taxation Office

Apparently an investigation has been started, though on the bright side, other than wondering why it was taking so long, it didn’t cause me any heartache.

Henry

The Henry Review and the government response were released on Sunday.

I had hopes there’d be some genuine, wide reform. Certainly Henry noted a lot of different options, some 138 recommendations in all.

With my PT hat on, the one I was watching most closely for was a rollback of the ridiculous fringe benefits tax on cars, which has a sliding scale which encourages people to drive further — and is costing taxpayers more than $2 billion per year. Henry recommended making it a flat 20% (compared to the current 7% to 26%). The government has been silent on this one though.

How about the idea of the optional tax return?

Tax returns would be made simple and effectively optional by giving everyone a automatic standard deduction for work expenses, freeing most employees from the need to prepare a return, ”instead allowing them to lodge a default return prepared by the tax office”.

Taxpayers who wanted to claim more ”would still have the option” of submitting receipts. Mr Swan said yesterday he was ”attracted to the idea” of making tax returns simpler and hinted he would announce changes soon.

The Age

Being a lazybones, I love that. I hope they do it. (Though actually I’d want to claim my donations.)

But overall, the government’s response seemed like a fizzer. Only about 10 of the 138 recommendations will be implemented — and they’ve specifically ruled out 18.

Sure, a few changes are being made, and the miners aren’t happy obviously about their new tax. (Can’t remember where I saw it, but one wag wondered how the miners might move operations offshore if it involved digging stuff out of the ground.)

But in terms of really making a difference, really simplifying the tax system, it’s ardly the kind of revolutionary reform we might have expected.

Well at least, not yet. We’ll see what happens after the election.

Working families

You can tell how much spin is going on from the number of times the tired old cliche of “working families” gets mentioned.

The count from Rudd’s interview on AM on Monday morning: 5 in an 8 minute interview.

Getting stuff done (or not)

Marita’s gone off overseas with Justine to explore San Francisco and surrounds.

Management of time is often an issue for me, and I in no way want to say that her presence is a cause of me not getting things done.

But I thought that while she’s gone for three weeks, I might have some time on my hands. So here are some things I intended to do while she’s away:

  • My tax return, which was due at the end of October
  • and my Dad’s
  • Ceiling fan for the livingroom
  • The new washing machine (I’ve pretty much settled on the Bosch)
  • Clear our my Dad’s unwanted books from the house
  • Replace the kitchen halogen lights with low-watt LEDs
  • Start my next blockbuster eBay auction

Reality is though, I’ve found myself busier than ever. For example, tonight there’s a dinner, tomorrow I’m going to a protest and then Trish’s wedding!

Marita will be back next weekend, and all I’ve got done so far is the washing machine, which arrived on Wednesday. (Just as well — when the old one got moved, I found bits of metal and ball bearings. It was not well.)