Fringe Benefits Tax (FBT) Favours Cars over Public TransportFBT is a tax paid on certain benefits employers provide to their employees. Provision of a car for private use is the most common FBT paid for by employers representing 46% of the total payment benefit types (Endnote 1). The taxable value of the fringe benefit for a car under salary packaging arrangements is a percentage of the car’s value calculated by using either a ‘statutory formula’ method or an ‘operating cost’ method. The ‘statutory formula’ method provides generous concessional tax rates that reduce with kilometres travelled – see table 1. This method was used by almost 69% of FBT payers in 2004/05. (Endnote 1) Overseas Actions.Table 1 – Statutory Formula – FBT Rates
There is also an option for cars to be purchased under a novated lease arrangement where the:
This allows the employer to claim a GST credit for the GST included in the lease charges, if the car is being leased to the employer in the course of its business. Car parking facilities are another employer provided benefit available to employees under salary packaging. By contrast, the FBT payable on a public transport yearly ticket provided by the employer under similar salary packaging conditions, is around 96% of the ticket value. FBT and the EnvironmentAustralia contributes 1.5% of global greenhouse gas emissions. Transport contributes 14% of Australia’s total greenhouse emissions caused by our reliance on the use of cars (for passenger transport) and trucks (for freight) and is one of the fastest growing sectors of greenhouse gas emissions. Greenhouse gas emissions from total transport are projected to increase by nearly 30% between 2005 and 2020 and Table 1 shows actual and projected emissions from the transport sector from 1990 (base year for the Kyoto Protocol) to 2020 Table 1 – Emissions from Transport sector (Endnote: 2) - Mt CO2-e
Australian capital cities are home to around 65% of the nation’s total population. Low density, sprawling suburbs have been created aided by the rapid improvement of the road system and expanded ownership of private motor vehicles. It is estimated that 35% of car use (private and company owned) is for travel to/from work (Endnote 3) often involving single occupancy. Road use and urban road congestion is on the rise in Australia’s major cities. Almost half of Australia’s total urban vehicle kilometres travelled are currently performed under congested traffic conditions (Endnote 4). This contributes to increased levels of air and noise pollution. Ambient air pollution caused by motor vehicles is also a major health problem. In 2000, such pollution caused an estimated 2,700 cases of morbidity and an estimated 1,400 cases of premature death. The main causes of death were cardio-vascular problems, bronchitis and other respiratory diseases. The cost of death and disease that can be attributed to motor vehicle pollution was of the order of $2.9 to $3.9 billion in 2000 (Endnote 5). There are significant benefits of an effective public transport system which offer compelling benefits to the Australian economy, community and environment including:
However, retention of existing FBT arrangements favouring cars over public transport restricts the potential of Australia’s public transport system to help Australia reduce car dependency and transport greenhouse emissions. Overseas Actions Overseas countries are actively pursuing increased public transport use including changing the taxation arrangements to promote public transport. USA (Endnote 6) Legislation was introduced in 1984 to allow eligible employers to give employees up to US$15 monthly in tax-exempt public transport benefits to offset commuting expenses. By 2008 this benefit had increased to US$115 per month. Employers get a tax deduction for their expense and save on payroll taxes. When first introduced, public transport patronage increased 25% at participating workplaces and in some areas 30% of participants were new users of public transport. Canada (Endnote 6) ‘Over the past decade, a coalition of business, labour, health and environmental groups has urged Canada’s Federal government to give tax-exempt status to employer-provided public transport benefits. In 2005, the Canadian federal budget identified tax-exempt public transport benefits as an environmental measure that would be considered, subject to further assessment of its environmental effectiveness, fiscal impact, economic efficiency, fairness and simplicity’. Independent research and analysis commissioned by the Canadian Urban Transit Association concluded that ‘among the notable results expected by 2016 are a projected increase in commuter public transport patronage of 8.3% to 31% and a net economic benefit of C$385 million to C$1.4 billion per year that would vastly outweigh the loss in federal tax revenues’. ConclusionChanging travel behaviour to avoid the negative impacts of the large and growing dependence on private motor vehicles in Australian cities requires a concerted and coordinated approach and a sustained commitment involving Commonwealth, State and Local governments, the business community and public transport operators. The following 2008 Federal and State government initiatives could provide opportunities for change:
Endnotes 1. Australian Taxation Statistics 2003-04 – Fringe Benefits Tax for 2004-05 FBT Year
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