It seems incredible that Australia still has tax concessions to encourage wasteful fuel and energy use.

One of the policies in desperate need of immediate overhaul is the fringe benefits concessions for company car use. The increasing amount of the tax benefit the more that one drives must be one of the more glaring defects in our tax system.

A consumer guide issued by Custom Fleet, a division of GE Commercial Finance, gives an instructive example: if “Mary” leases a new Pajero via her employer and drives it 23,000 kilometres, the FBT payable is $9,521. But if she “can simply travel 2,001 kilometres extra”, says the guide, the FBT liability drops to only $5,237.

A $4,300 reward for driving an extra 2,000 kilometres? Little wonder the roads are chockers with company cars in March, the last month of the FBT year.

If Mary convinces her employer to provide her with a public transport package instead of a company car, there is no concession — the maximum FBT rate applies.

This is a policy that has no defenders, only apologists and slightly embarrassed beneficiaries.

In the upcoming budget, it is crucial the Government signals a restructure of the FBT rules for company cars. Why not peg the FBT rate to the fuel efficiency of a vehicle, rather than to the kilometres driven? This would change an incoherent policy to a virtuous one, while giving a clear incentive to manufacturers of efficient vehicles that would complement the Government’s proposed green car innovation fund. In the UK, company car tax is linked to emissions ratings in just this way.

Reform of the FBT would be one of the strongest signals the Government could give in its first budget that its commitment to a “Green Budget” is fair dinkum.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey