The salary packaging industry is built on tax breaks. The Government is showing just how risky that strategy can be. Some companies say they’re facing decimation as the Government plugs the budget hole left by axing the carbon tax.
TICKY FULLERTON, PRESENTER: There’s been howls of protest from the salary packaging industry over the FBT changes. It’s an industry built on tax breaks and the government has shown just how risky that strategy can be.
Some companies say they’re facing decimation as the government plugs the budget hole left by axing the carbon tax.
But there are warnings to industry that depends on Canberra for its survival.
As Andrew Robertson reports.
ANDREW ROBERTSON, PRESENTER: Tim Vlug runs a salary packaging business in Brisbane. He says with one decision, the government has devastated that business.
TIM VLUG, CEO, REDITUS GROUP: Probably about an 80 per cent drop in the revenues for the business and that will see most of the salary packaging providers cease to exist in effect.
ANDREW ROBERTSON: Another salary packaging provider, the much bigger Sydney-based Smart Salary is comparatively better off. It predicts only half its business will be destroyed.
SIMON ELLIS, SENIOR TAX ADVISER, SMART SALARY: We’ve known, well right since the beginning that there are changes to the law that could result in our business effectively being wiped out.
ANDREW ROBERTSON: It’s estimated 200,000 cars are leased and the government is hoping to raise $1.8 billion by removing tax breaks for those used privately. In the process, it’s highlighted how vulnerable the car leasing industry is to the whims of government.
RICHARD DENNISS, CEO, AUSTRALIA INSTITUTE: If your whole business model is set up around a tax deduction, then yes, that’s a very risky place a very risky way to organise your business.
ANDREW ROBERTSON: And car leasing is not alone. As Richard Denniss points out, Australia has a whole raft of industries that thrive on the back of favourable tax treatment from Canberra, with the biggest being superannuation.
RICHARD DENNISS: The primary reason that people go into superannuation and the primary reason that the industry charges the fees they can charge is because of the massive tax concessions available.
ANDREW ROBERTSON: Among the other industries that rely heavily on government largesse are the property industry through negative gearing, the rebate for private health insurance and penalties for the rich who don’t have it. Any form of investing through the Howard government’s halving of capital gains tax. The mining industry’s diesel fuel rebate and accelerated depreciation. Production costs rebates for movies and television. And the list goes on.
Richard Denniss believes the government’s reduction in fringe benefits tax exemption for leased cars should be a warning to those industries.
RICHARD DENNISS: Anyone who’s got an exposure to those sorts of risks should be both aware of that and potentially diversifying their product to make their product attractive to people even without these very generous concessions.
ANDREW ROBERTSON: Whatever the merits of the fringe benefits tax decision, the way it was announced has really rankled sections of the business community. It’s revived memories of the mishandling of the mining tax and of course the carbon tax. The University of Sydney’s Associate Professor Nigel Finch is among those who are unimpressed.
NIGEL FINCH, ASSOC PROF, UNIVERSITY OF SYDNEY: This government I think has a very poor record of executing reforms and a lack of consultation.
ANDREW ROBERTSON: Associate Professor Finch says that lack of consultation has robbed those involved in the car leasing industry of the opportunity to make an orderly transition to a new regime.
NIGEL FINCH: Just an announcement with a very short lead time creates a lot of chaos a lot of distortion and volatility in the economy.
ANDREW ROBERTSON: Not to mention, ill will towards government and in a tight election, that could be costly.