Putting the ‘free’ car through the tax grinder

Press, 23 August 1984, Page 21

Putting the ‘free’ car through the tax grinder

By

KEN COATES

Taxing the “perk” of free company cars for executives, provided along with petrol and parking, could be seriously considered by the Government. It is being seen as one of a series of fuel-saving measures that warrant examination, particularly in the light of the recent petrol price rise. Such a move could reduce wasteful use of petrol for which users are not obliged to pay, reduce the number of large expensive cars being imported, and encourage more car pooling and use of public transport, it is argued. The measure, also viewed as an issue of justice because of the added burden the fringe benefit places on the rest of the country’s taxpayers, is proposed by Janice Wright, an energy consultant, of Christchurch. Interviewed following the recent massive rise in petrol and diesel fuel prices, she urges a new look at conservation measures aimed at maximum efficiency in energy use. Jan Wright is well qualified to give advice to a country now facing an annual bill of $2OOO million for petroleum products, but which has never seriously examined how energy can best be conserved. She spent 2% years in the United States completing a masters degree in energy resources. While there, she worked at the Lawrence Berkeley Laboratory, and is coauthor of a book published in the United States last year which looks at conserved energy as a new energy source, and assesses the cost of conservation, compared with new supplies. Jan Wright is also well informed on what can be done to use energy most efficiently in New Zealand; she has just finished a report on conserving transport fuel for the Liouid Fuels Trust Board. She says this includes looking at ways of improving the efficiency of cars, including pooling, shifting car commuters to buses and trains, and energy use and costs in road transport, railways, and shipping. Her proposal for taxing company cars is sure to be controversial, with loud protests from the motor

industry and, naturally, the recipients. But it could well have immense appeal for the new Government, hungry for tax dollars. At least 60 per cent of new cars are estimated to be bought by companies, and a tax on those provided free to employees as part of a salary package could well amount to many millions of dollars. The free car “perk” varies in quality. Some users have to pay for week-end petrol, and some cars are required to go into the company pool when holidays are taken. Within the company it is a basic measure of status: a Mercedes or Jaguar for the supreme boss, lesser vehicles for middle management, and still lesser for sales staff. Chief executives tend to rate a car costing about four-fifths of basic salary. It is usually replaced frequently, and insurance, petrol, parking, and running costs are all included. Jan Wright regards company cars as a legal form of tax evasion, and a way for firms to get round the wage freeze. Companies claim for running expenses and for depreciation up to $ll,OOO, while the recipient gets a non-taxable benefit. “However, the practice encourages wasteful use of petrol as the person' with a free company car is not subject to market forces,” she says. “The steep rise in the rise of petrol will not influence him to change his habits. “Who will take a bus to work, or cut down on pleasure and shopping trips, when he enjoys free transport in a company car?” Cars provided as a “perk” are taxed in Britain, as well as in Canada and Singapore. Exemption here means a subsidised form of transport, no less than city buses, as other taxpayers have to pay a little more. A motorist driving a free car and not paying for petrol will have no motive for car pooling, and in many cases has a household with an unnecessary two cars. The practice also tends to dic-

tate that New Zealand should have many larger and more expensive cars on the road. The prospect of a tax on company cars was raised three years ago by a commission of inquiry into taxation of travel allowances. It touched a sensitive spot, particularly with outraged executives, and threw the previous Government into turmoil. The commissioner, Mr W. Wilson, an Auckland accountant, held that a motor-vehicle which was a perquisite of office might confer a significant benefit which should be taxed in the same way as remuneration in cash. The Government rejected the commissioner’s proposal on company cars, officially stating that it did not see why this form of fringe benefit should be singled out; unofficially, because many recipients were considered likely supporters. One man who has consistently urged that company cars be taxed is Mr Jack Lello, an Auckland civil engineer, town planner, and environmentalist. He has estimated that 20 per cent of cars are owned by companies. When his contention was first aired in the newspapers, he received many telephone calls of protest, some strongly abusive. He sticks to his view today, and says a company car is now worth at least a salary increase of from $7OOO to $15,000 a year on which tax would otherwise be paid. Mr Lello also argues that the practice creates an artificial demand for new cars in the $24,000 to $96,000 price range, props up high secondhand prices, and distorts the market. Few average wage-earners can consider the cheapest new or nearly new car at $12,000 or more. This does not go unnoticed, and may be partly responsible for serious social divisions, and demands for workers’ travel allowances. It is obvious that the heavyfooted road hog who loves accelerating away from traffic lights and braking hard bums a lot of petrol. The saving between the best and

worst drivers is as much as 30 per cent, according to Jan Wright. In theory, driver education has a great potential for saving petrol, but the problem is how to carry it out. A more effective approach, she says, is for drivers to realise a well-tuned car engine brings economy. Seven years ago, exhaust fumes were tested on cars in Christchurch and Dunedin during warrant of fitness checks. More than 70 per cent of owners were advised to have engines tuned, she recalls. “The testing was an anti-pollution measure. It would be well worth re-examining for fuel savings which can be as high as 30 per cent.” Few New Zealanders, whether they own a car or not, would disagree with Jan Wright when she says it is ridiculous to have 1.4 million cars built to hold four to six people travelling around holding less than two. Until we want to make a quick trip into town, that is. But we choose driving because, in our minds, it is more convenient and is “free,” whereas the bus costs money. We tend to discount the time spent searching for and walking from a parking space, and time spent looking after the car, and earning the money to buy it. We would rather not stop and consider the latest A.A. Canterbury estimate of 27.1 cents a kilometre it costs to operate a car of up to 1600 cu cm (with an annual mileage of 16,000 km).

Persuading people to switch to different modes of transport would undoubtedly save fuel, but attitudes to public transport often block such moves. The official attitude often rates buses and trains as money-losers and this, in turn, affects the attitude of the public. Jan Wright questions these, pointing out, for example, that different accounting methods are used for buses and trains than for the financing of motorways. She cites the $l2 million plus motorway interchange at the foot of the Ngauranga Gorge on the northern outskirts of Wellington. Benefits of the northbound lanes, opened earlier this year, were rated as $1.3 million a year, or $2.6 million when the project is completed. It was officially stated that the lanes would pay for themselves in 5% years. Financial “profits” are calculated in terms of fuel and time saved by motorists no longer sitting in a traffic jam. But commuter trains, expected to lose $16.63 million this financial year, receive no credit for reducing congestion on the roads into Wellington city. Commenting on road freight transport, Jan Wright says the greatest inefficiency is the practice of trucks returning empty after delivery. With computerised communication systems, dead running could be minimised and trucking firms should co-operate.