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Thursday, 18 September 2008
Page: 5095


Senator XENOPHON (12:46 PM) —The debate on the Tax Laws Amendment (Luxury Car Tax) Bill 2008 and related bills reminds me just a little of the movie Groundhog Day. We did the same thing a couple of weeks ago and we are doing it all over again. It remains to be seen whether there will be a different result at the end of the day. But, I do respect the right of the opposition to speak to this in the second reading stage. I think it would have been fundamentally wrong for that not to occur, given that that was the wish of the opposition.

I want to make some brief remarks given the developments that have occurred since we last debated this. My position in the debate on the second reading is that I will support this bill and the related bills at the second reading stage, but I will reserve my position in respect of the third reading. As I noted the first time I spoke to this bill, the Australian automotive manufacturing industry is a major part of the national economy, with exports growing to just under $5 billion in 2007. As an independent senator for South Australia I am acutely aware of and proud of the significant contribution that the automotive manufacturing industry makes to South Australia’s economy. And, can I say, it was an occasion of great regret—not just for me but I think for every South Australian—when Mitsubishi closed down its operations not so long ago. They made a great car but unfortunately it was not selling. It was a great car made by a great workforce and I hope that all of those who were dislocated by that closure have found work, because they deserve to.

I will in a moment address the comments made by Senator Joyce about the importance of the manufacturing industry and its potential impact. But there are a number of other factors that are very significant to the viability of the Australian motor vehicle manufacturing industry. One of those is the whole issue of tariffs. I support the 10 per cent tariff. I do not support it being reduced to five per cent in 2010. I note the contents of the Bracks review. I think it is absolutely important—given the upheaval with Mitsubishi and the changes to the world car market relating to low-emission vehicles such as hybrid vehicles, which is an emerging and significant trend that I will refer to in the context of the amendments that the Greens have pushed for and that I have been highly supportive of—that we keep the 10 per cent tariff well beyond 2010. That is the key issue. If you are concerned about the motor vehicle manufacturing industry in this country, keep the 10 per cent tariff beyond 2010.

The intent of this bill has changed a little since its first introduction. Namely, it aims to raise the luxury car tax from 25 per cent to 33 per cent for vehicles over $57,180. These vehicles will be taxed for that portion of the cost that is above the threshold, with a projected increase in tax revenue of $555 million over the next four years. I note that in the budget forecasts there were, as I understand it, certain assumptions made with respect to the exchange rate. My question to the government is: to what extent will the movements in the exchange rate—the significant drop in the Australian dollar—impact on the projected tax take from these bills? I think it is important that we in the Senate know what that is because clearly it has changed one of the parameters.

But let us put this in context. This increase in the luxury car tax is part of the $6 billion of tax increases that are in dispute and that make up the projected $96 billion budget surplus. I am sympathetic to initiatives to support the local automotive industry. Keeping the tariffs at 10 per cent is a very significant bulwark, if you like, for the industry. I also support measures to encourage so-called green cars in terms of low-emission vehicles. But let us put this in perspective in terms of the concerns raised by Senator Joyce and others—and they are very legitimate concerns. Given that the vast majority of cars subject to this tax are in fact imported—close to 90 percent—I believe that this tax will not diminish the viability of the Australian automotive manufacturing industry. In fact, I think it will enhance it because this proposed tax overwhelmingly and disproportionately impacts on foreign cars.

I have concerns that this is a tax that in some respects is filling a hole to do with the government’s core promise to deliver tax cuts at the last election. There was a bidding war between the two major parties on tax cuts. Some would say it was a me-too tax cut announced by the then opposition to catch up with the then government’s proposed tax cuts. I would have thought a neater and more effective way of doing this, but it would breach a core promise of the Rudd government, would be to have a simple increase of about 0.4 per cent per annum on the top tax rate implemented earlier this year. There was a tax cut, but if there was a 0.4 per cent increase on the top marginal tax rate, the information I have is that that would raise about $510 million in revenue over the next four years. That would have been, I think, a more transparent and neater way of dealing with it. That would impact on approximately 200,000 Australians at that top rate and I believe it would be a more transparent way of taxing the better off, if that is what the government is really trying to do.

I had reservations about the bill in its original form but was prepared to support the second reading on the basis that there were going to be a number of amendments put to the chamber. I foreshadowed a number of areas which, if addressed, would have made it a fairer and more constructive bill. These areas centred on the 13 May cut-off date, the indexation of the threshold and the exemption of low-emission vehicles. As the bill was defeated at the second reading, and I respect that process, I was not able to have these discussions or to seek amendments. However, the reintroduction of the bill would seem to signal the government’s intention to respond to the concerns raised by me and other senators.

For my part, I have actively sought briefings from the Treasurer’s office and consulted the various interest groups in preparation for this bill’s reintroduction. I do not think anyone, except perhaps Treasurers and Treasury officials, likes increased taxes. However, the government must raise revenue to fund its priorities, and I do not wish to obstruct it unnecessarily in this aim. That said, I still have a number of concerns that I have raised with the Treasurer’s office. These concerns relate to: firstly, the indexation of the threshold now and into the future; secondly, exemptions for low-emission vehicles; thirdly, contracts for vehicles signed before 13 May but not delivered until after 1 July; and, fourthly, the impact of these changes on primary producers.

In relation to indexation I note that in 1986 around 4.5 per cent of vehicles were classified as luxury cars—there was a different tax rate, but it was effectively a luxury car tax—and in 2007 that figure had grown to 12 per cent. This gradual creep in the threshold is a matter of concern. It occurs because there is a distinction in the method of indexation: there is a CPIMV as distinct from the ordinary CPI cost of living increases. That is why the threshold has not increased to the same extent as actual cost of living increases. It is based on a formula that has been well described in the Economics Committee’s report in terms of a quality adjustment that is part of the CPIMV. I discussed this in the speech I made in the first second reading debate on this legislation, and the Economics Committee’s report gives a fairly good and robust explanation. I have concerns that, if indexing is not addressed, one day my $18,000 Toyota Yaris may well be deemed to be a luxury car. It may not be in the near future, but it may be eventually because, as you can see if you look at the graph and the material set out at page 7 of the committee’s report, the CPIMV is pretty flat or has actually declined for some years whereas the CPI is growing at a steady rate. That is something that needs to be addressed.

I put those concerns to the government. I did circulate an amendment based on CPI from day one of this proposed new tax or increase in tax. I am not persisting with that amendment. I have withdrawn it, if that is the proper terminology, on the basis of information I received from the Treasurer’s office—and it is a pity we cannot have a guessing game here now, asking honourable senators what they think that figure is. I asked the Treasurer’s office what the cost would be of indexing from 1 July this year. I imagined it would be $10 million to $20 million a year, based on the ordinary CPI. The information I received from the Treasurer’s office in an email is:

The revenue cost of indexing the LCT threshold to the CPI rather than CPIMV would be in excess of $400 million, assuming enacted from 2009-10 and costed out to 2012-13. This is a rough costing only but unsurprising given the measure’s broad impact.

I appreciate the Treasurer’s office did seek advice from Treasury and did their level best based on the limited time available, but that does seem to be an extraordinarily high figure.

Further information I have received from the Treasurer’s office indicates the basic methodology was that this model was indexed to the LCT threshold with the CPI, that it took into account the growth in car sales and that the assumptions were as follows: that the CPI was in keeping with the budget forecasts; that Treasury’s car sales growth rate is a weighted average because of the budget forecasts for vehicle sales growth and Treasury’s analysis of VFACTS—the car industry car sales growth data—to determine luxury car sales; that the car price reach model was averaged across the variants; and that the financial impact was determined by assessing the difference between the LCT revenue collections based on the current indexation treatment and the proposed treatment, keeping all else constant. It may be that other senators will have questions to ask about that. It seems to be an extraordinarily high figure, but I have accepted that figure in good faith on the basis of what I have received from Treasury. However, I do call on the government to provide specific details in the committee stage of the bill as to what percentage of vehicles will be classed as luxury cars and fall within the threshold in future years—perhaps in two, three, four, even 10 years time—if indexation is not applied. I think there ought to be some genuine attempt on the part of the government to advise us of that.

I note, however, that the government will be referring the issue of this tax to the Henry review of taxation. I would like clarification from the government as to whether this issue of indexation will be a specific issue that is referred to the Henry review by the Treasurer so that there is no ambiguity in relation to that. I appreciate the government’s undertaking that this and other issues relating to emissions will be going to the Henry review. I want to hear from the government in the committee stage as to how it calculated indexation. I believe that we deserve more details on that. I reserve my position on whether there ought to be an amendment to look at the whole issue of indexation from after this forward estimates period in four years time so that at least we can say there is a line in the sand. We would then examine whether we should still continue to use the CPIMV method of indexation or simply the CPI.

In relation to my concerns around greenhouse emissions, I note the work of the government and the Greens with this matter and foreshadow my support for these amendments, pending consideration of the technical aspects in the committee stage. I particularly welcome these amendments and congratulate Senator Milne for the work that she has done in relation to this. I believe that the future of the Australian car industry lies with green vehicles. That is the future. If we send a price signal now about exemptions for these green, low-emissions vehicles, that will send a very strong signal to our manufacturing industry here in Australia to plan for the future. We know what Toyota is doing with the hybrid Camry. That is a good step. But I believe that this would really kick-start sales and make a very significant difference by getting rid of that luxury car tax threshold on low-emissions vehicles with that ceiling of some $75,000. That is the way of the future for motor vehicle manufacturers in this country. That is the way that we can secure the future of this industry. That is why I believe that this approach of having those exemptions is the way to go. That is where our jobs will lie: in producing clean, green vehicles.

I also foreshadow that I will be introducing an amendment in the committee stage to address concerns about people who entered into a contract before the announcement of the changes in the luxury car tax but did not take delivery until after 1 July and hence were liable for the tax. For the benefit of senators, the initial amendment that I circulated had some issues with the wording, for which I am responsible. The wording is now clearer. That is something that I should have addressed earlier. But I think that the wording is now sufficiently clear to ensure that if a contract was entered into before 13 May and the budget announcement and delivery took a bit longer than expected then the tax should not apply. I see this as a matter of fairness to consumers. Those who entered into a contract in good faith should not be forced to pay a surprise tax because their vehicle was not delivered until after 1 July 2008.

I also note that my advice is that the amendments to be moved by Senator Fielding—and I know that they will be discussed in the committee stage—are amendments that I in principle support. They are to do with exemptions for primary producers and for tourist operators. I ask what the proposed cost of that will be. I commend Senator Fielding for his work in relation to that. It seems to me to be one way of making this bill fairer for those primary producers and tourism operators. I support this bill proceeding through the second reading stage, but reserve my position in respect to the third reading. From a personal point of view, I hope that this will not be like Groundhog Day and that we can deal with this bill effectively.