David Bushby (Tasmania, Liberal Party) Share this | Hansard source

The Tax Laws Amendment (Luxury Car Tax) Bill 2008 and related bills are further clear examples of a government far more interested in trying to manage its public image than in getting on and governing the nation in the interests of its people. The fact is that if the government had made no policy changes in its budget in May this year the surplus would have been around $22 billion. That is right—no new taxes, no cuts in spending and the result would have been not too different to what we saw after all its dramatic ‘economically responsible’ cuts to vital services and all its new taxes. And I tell you, there are new taxes in the budget—some $19.7 billion of them over five years—and, interestingly, the only new tax cut included in the budget was for foreigners, with a reduction in the withholding tax for managed investment funds of $630 million over four years.

So what was the need for all these new taxes? They were needed because the Labor government also increased government spending—that is, new government spending—by a massive $34 billion over five years. That is $34 billion in new spending. For a government decrying the need to slash spending to keep the inflation rate cancer genie in a bottle, that seems a lot. But it is also the reason why it needed to slash existing programs by $18 million over five years, taking money away from the Auditor-General, the Ombudsman and the CSIRO, as well as funding for innovation and R&D programs. I can understand the ABS cuts. Their cuts to the labour market series will help obfuscate rising unemployment trends. And the list goes on. All the vital program cuts and new taxes are referred to by the government as ‘savings’.

One of these new government savings is the subject matter of the bills before us today. The government has budgeted $555 million over four years for the savings from this measure, but the evidence from the Senate inquiry into these bills and elsewhere has shown time and again that this figure is pure conjecture at best and, in all likelihood, unlikely to be realised. This is because it is based on first-round effects only. It is calculated on the basis of a pure change in the rate and assumes very little, if any, elasticity of demand for the vehicles priced above the threshold. But the reality is that buyers of cars around the threshold for this tax are highly price sensitive and that there is a high level of price elasticity. In fact, the sales evidence for July this year is clearly proving that the sales of cars above the threshold will fall dramatically as a result of this measure. The higher the price of the car the more likely that the buyers are people who have the means to pay the cost of the car plus any taxes that might be put on it. Certainly, when looking at Aston Martins and S-class Mercedes, which cost many hundreds of thousands of dollars, many of the buyers would be in a position to not be too concerned about the extra imposition of these bills—even more so, when looking at purchases of $1 million-plus Rolls-Royces.

But it is not in the Rolls-Royce price range that the government makes the bulk of its money on this tax. Indeed, the importers of Rolls-Royce in Australia were delighted to recently report a huge increase in sales in 2007-08—a total sales figure in that year of 12 cars. Between the threshold of $57,180 and around $75,000 is where the vast majority of the cars attracting this tax are sold and it is where the vast majority of tax takings are generated. Indeed, almost 60 per cent of all vehicles incurring the luxury car tax are priced below $70,000. So this price range is where the effect on sales figures needs to be examined. The sales figures for July and the advance orders being received by car retailers report a huge downturn in this very price range. If this trend is wholly or even in part due to the imposition of the higher car tax and it continues, the potential increase in the take by the government as a result of the tax increase could be far less than anticipated. Some car retailers even suggested during the Senate hearings that, based on their figures, it could even cost the government money as the sales fall to such a low that less tax is generated than was raised prior to its introduction.

But the problems with the measures contained in these bills extend further than just the likelihood or not of their achieving the budgeted tax increase. The new measures are likely to have quite perverse results for local car manufacturers, on incentives to fit and availability of safety equipment and on environmentally friendly technologies and will decrease the possibility for those with less income to access cars better equipped with safety and green technologies.

The reality is that most cars around the threshold and up to $100,000 are bought by people who would love to buy an S-class or another top of the range European luxury car but who do not have the means and who have to be careful with their money. They love the safety features of these cars and they love the efficient new environmentally friendly technology of these cars but they do not have unlimited resources. As such, they buy the best car they can afford, the car that comes with the most features that they desire and, again, can afford. The price of these cars is vital to their purchasing decision. Adding to the price of cars within this price range will seriously impact upon the purchasing decisions of those who buy them. They will either have to buy a lesser spec car at a price comparable to the pre-tax-hike figure or not buy the car at all. In making such a decision, they may be forced to abandon the choice to purchase additional airbags or the latest dynamic stability control or even be forced to purchase a non-hybrid version of the same or a different car.

It is a generally known rule of the business of car retailing that the base models, which turn over the highest volume, do so with a lower margin and that the viability of many retail operations depends on the much higher margins that are applied to the higher spec models. This was confirmed by questioning of car retailers in the Adelaide hearings of the inquiry. It was also noted that car manufacturers in Australia also rely on this sales principle—that is, the top end sales of Calais, Statesmans, Caprices, HSVs; fully loaded Toyota Aurions; and Ford G6Es, XR8s, Territories and FPVs contribute more to the viability of car manufacturers per car than do the sales of the base models. This is where this government is seeking to attack local car manufacturers and retailers of locally made cars—right where they make the margin that makes them viable.

The increase in the tax will also have a serious impact on the delivery of innovative safety options on new cars in Australia. History shows us that almost all new innovations in safety equipment have been developed at significant cost by major luxury brands. These include ABS brakes, airbags, electronic stability control and traction control. The manufacturers of these high-end cars need to price their cars accordingly to cover the substantial development cost of innovative safety features. As such, when first developed these features are not readily available on mass market cars. However, as the technology is proven and as economies of scale kick in, these technologies do become available in what is termed the trickle-down effect. Progressively, less expensive cars gain them as an option and then as standard until over a period of years these features are available on even the least expensive vehicles. The relevance of this to these bills is that their passing would work to delay the trickle-down effect on the introduction of this technology, thereby delaying the benefit of it to Australians at given pricepoints.

There is no doubt that the luxury car tax is a tax on innovation, even as it stands. But to increase it further makes it even more likely that it will be longer before we see such innovations in Australia on lower and middle priced cars. Quite clearly, I am not saying that the passing of the bills would lead to less safe cars being built or imported into Australia, as disingenuously and repeatedly suggested by one government senator at the hearings into these bills. On the contrary, what I am saying and what the evidence at the hearings supported is that Australians buying cars to a price will sacrifice some of these new features in order to be able to afford the car and the newly raised tax. Similarly, some manufacturers and importers will build and import cars without some of these features in order to remain competitive on price—all at a loss for Australian consumers.

A similar argument was supported on the evidence in relation to technological developments delivering more efficient and environmentally friendly vehicles. For trickle-down reasons and to cover high development costs, the cost of these cars can often be above the tax threshold. Or the cost of adding environmentally friendly options may push the cost of these cars over the threshold or render the purchase uneconomical when combined with the higher tax. Whether you are a climate change prophet or a heretic who dares to refuse to believe the gospel on climate change, you would think all would consider it advisable to promote vehicle technology that delivers less pollution and better efficiency. Yet here we see a government raising taxes and imposing a disincentive to buy cars and options which do just that. Further, you would think that a Labor government—all flavours of governments—would want to see more people able to afford cars that are well equipped with safety and technological features.

Debate interrupted.