Andrew Laming (Bowman, Liberal Party) Share this | Hansard source

In winding up the debate, I do not think it would be terribly constructive to simply restate the arguments, so instead I will just focus on three elements of this Tax Laws Amendment (Luxury Car Tax—Minor Amendments) Bill 2008. In essence, what we are doing here today is fixing up the scrambled egg as best we can before we send it back to the other place to pass what I believe is a bill that has already proven itself to be completely out of its economic times.

The point that has not been made today about the luxury car tax is that at any time a government finds itself in a position where it has to raise a tax it has to make the case to the Australian people that that is an appropriate thing to do. What we have not heard stated today in this debate or in the debate that ensued after this tax was announced is that economic times have changed. Probably page 1 of any economic textbook says that, while an economy is in contraction, it is not terribly smart to start taxing all over again. No government in its right mind would introduce new taxes or increase taxes at a time of fiscal contraction. I guess the New South Wales government is a notable exception. It has introduced taxes just at a time when you are trying to put money back into people’s pockets and keep it circulating. The last thing you want to do economically at that time is increase taxes. Keynes talked about that, and every economist since would probably agree that it is not a terribly wise move unless an extraordinary case is made.

At the start of the year when the new government was increasing taxes I am sure the other side felt that this was a good way to pay for Labor’s promises. Well, that was then. It is a completely different time now. We are debating the minor luxury car tax amendments today in a completely different context. Right now we need to be asking why $550 million over the forward estimates is being ripped out of Australians’ pockets. No matter what explanation comes from the other side of how the money will be spent, we have to ask why it is being done now. If this were an economic debate, I think most governments—even those in their third or fourth terms or in their decline—would agree this is a foolish tax and would screw it up and throw it away. Instead, this is more of a political point that is being made today: it is more important to avoid rolling back and rolling over than it is to correct a foolish tax.

The case for increasing taxes has not been made in this economic climate. Right now the world is engaging in fiscal stimulus. OECD economies are trying to put money back into people’s pockets to circulate the money locally. We are actually seeing the reverse happening here. This is an inflationary tax grab that might well have been appropriate for a Labor government at its hegemony—choosing to increase taxes in areas where it was not going to cop too much political opprobrium—but right now we are in a completely different economic time.

Once you have endeavoured to make a case to increase a tax, you need to look at the sector that is the target of that tax. Moving from page 1 to page 2, the lesson is that you choose, where possible, not to tax highly-elastic purchasing. If you are going to tax something like luxury imports, you can increase that tax only so far before people stop purchasing luxuries. Let us take this to the ad absurdum: if you move the tax from 25 per cent to 100 per cent and make all luxuries twice as expensive, no-one will buy them and you will collect no tax. There is a very subtle balance, as Ronald Reagan himself found with the famous J-curve of tax collection. They found they collected more tax from certain demographics by lowering the rate. That increased the collection. So there is a fine balance.

It is a little precious to say that, because we on this side of the House in 1979 introduced a luxury car tax, we cannot argue that it should not be raised. Every government that chooses to change a tax has to make that case again. It is a case that has not yet been made. It has not been made in this economic climate. It has not been made to tax luxury imports. I do not stand here as a defender of luxury imports; I stand here saying that we know that luxury imports is the one sector that will be hurt most by the economic climate we are about to enter next year. We know that they will shrink the most. We know that anyone employed in that sector has the most to lose. When you choose to tax or estimate how much you will gain from a tax, you should keep in mind that that is shrinking as we speak. MYEFO laid it out: the estimated $555 million that we would make from this tax has already been shrunk by 20 per cent. I put to you that it will shrink again by another 20 per cent by this time next year. You can only push so hard with a tax before it starts being a self-feeding cycle of lost tax. The case has to be made that this is a tax that will even work.

I move from whether you raise taxes and whether this government has chosen the right sector to how it is being implemented upon the sector. We know that, once you set any level of tax, there is gaming around the margin. There will be gaming to produce a car that is slightly cheaper to avoid the tax, knowing that once you exceed a price of $75,000 there is considerable disincentive to purchase the vehicle. Of course, this tax came in long before there were the safety add-ons—electronic steering, airbags and all the other things that make vehicles safer. The one fear we have with this tax is that it is a disincentive to purchase safe vehicles. It is only a small consideration, but one that needs to be aired in this debate.

A far better tax design would take account of those who upgrade for safety reasons, those who need a larger car for their family and farmers and tourist operators who need larger and more expensive vehicles for their businesses. It has taken an unseemly and messy debate between these two places to get the government to agree to that. My personal view is that we should have torn this tax up completely and come up with a luxury car tax that took into account those elements. The opposition in fighting hard for this have gone about as close as we can to unscramble the egg.

So I have gone from whether we should increase the tax to should we be attacking the very sector most vulnerable in the economic climate ahead to are we even going to collect the revenues that we hope to through to are we doing it in the right way at all. At all four levels the government has fallen at the hurdles. It is something you might expect from a government that is in decline. It is something you might expect from a government that is running out of ideas. It is extraordinary that we have these messy debates with rushed legislation being rammed through the chambers in the first six months when there has been all that clear air and time to prepare legislation properly. It is fascinating that this government has simply chosen not to do so. It is fascinating that this government has not chosen to tailor and modify this legislation to make it fit the economic times that we are in. It makes many in the general community outside of this chamber wonder whether this is more a political point being made than an economic one. The other side of the chamber have the general comfort that so long as they hit the rich they can probably get away with it politically. The fact that every time you hear about the luxury car tax on the TV you see an image of a Ferrari makes them think that they can get away with this tax politically.

The speaker who preceded me, the member for Makin, made a very strong case that taxation on vehicles over a certain price—$555 million over four years—is actually good for the local car industry. There is the counterargument that, by taxing the higher end of Australian car manufacturing, we are removing the most profitable subsector of local manufacturing. The great tragedy is that some Australian vehicles fall in the remit of the luxury car tax. I think it is terribly unfortunate that we added a 25 per cent tax and now a 33 per cent tax on Australian made vehicles. That is an unfortunate design of the tax. Many countries are smart enough to avoid that, but it happens here.

There are ways around that. Of course, we can pull our vehicles down underneath that threshold. But the counterintuitive is that the government’s modifications, where fuel efficient vehicles are exempt from the tax, have effectively given a leg-up to foreign made, fuel efficient vehicles over the Australian made equivalents. Do not for one moment read my words to say I do not support fuel efficient vehicles. But I would like to see our domestic vehicle manufacturing sector transitioned to fuel efficiency before the tax is placed. It is extraordinarily painful and frictional to tax the higher end of Australian manufactured vehicles—the most profitable sector of Australian made vehicles—and at the same time make imported BMWs, for instance, because they are fuel efficient, cheaper and more attractive. That is the counterline that we need to consider when we read poorly thought through quotes from business identities in South Australia. I am sure, were they made aware of the alternative impacts of this tax, they would not have said the words that were read into the Hansard a few moments ago.

The outcome of cheaper imports being exempt from the tax is quite simple: you undermine Australia’s car manufacturing industry. Right now it is a miasma—isn’t it?—of money being given and money being taken away. Of course, both sides can make a case that Australian car manufacturing is either better or worse off. But in the end the whole process has been muddied by this legislation. The reality is that Australians are today working on car manufacturing lines and putting together Australian made vehicles that will be subject to a 33 per cent tax. I think this side of the House is right to make the point that that is foolish. You cannot simply say that we cannot make that point purely because we brought in this tax in the first place. The current taxation on luxury vehicles, at 25 per cent, is at a historical level. We are very happy to leave it where it is. The government propose to raise it to 33 per cent. They need to make the case to people in the chamber, to people in the media and to those in the general community that this is the right thing to do at this economic time to this sector, while the Australian car industry is producing cars that can be slugged with the tax. It is unseemly.

The government are quite prepared to do the big-picture things. This week they have been naming healthcare ambassadors and hair care ambassadors. I really cannot resist: there could well be a time for a car care ambassador. There are a number of people on the other side of the chamber. I see the Minister for the Environment, Heritage and the Arts sitting there. He may well have a close relative or a very close friend who might like to be a car care ambassador. If they have a drivers licence, they are probably perfectly capable of being a car care ambassador. Why not name some car care ambassadors to go down to the manufacturing plants and explain a 33 per cent tax on the vehicles we are manufacturing now? The machining and the lines are producing these cars now, and they are going to be taxed at 33 per cent. That would be a fascinating conversation and I would like to be a part of it.

Until we transition our car industry to a point where it can make smaller and more fuel efficient vehicles, I respectfully put that a 33 per cent tax on Australian made vehicles is not really the way to do it. The way to do it is through packages of assistance to transition the sector. That is appropriate. There is no point killing off the demand for Australian vehicles while they are being made. That is not the sequencing of events that is likely to be effective and successful. There are a number of completely unintended consequences of this tax. I do not think the government even realised, when they raised this tax, the impact it would have locally. I do not think they realised how they were going to scramble the egg for tourist operators and farm operators, who were buying vehicles for very good business reasons and being faced with a completely unfair tax. It took an extraordinary battle to have these amendments passed. It was not easy. People listening to this debate will say: ‘Surely common sense prevails. Surely two heads can get together and work out a tax that is going to be efficient.’ It has been an extraordinary struggle to get farmers and tourist operators exempted from this silly tax in the first place.

Right now the argument for a tax increase is flimsy. As the final speaker in the second reading debate on this bill, the only thing I can say is that I hope we can transition the Australian vehicle manufacturing sector in a way that does not cost us jobs. There are a lot of threats on the horizon. They come not only from the international economy; they come not only from the potential shrinkage of Chinese domestic consumption; they come not only from alterations in the terms of trade; they come also from not maintaining confidence within Australia to consume locally. Make no mistake. This tax will harm the Australian appetite for locally made vehicles, and that is particularly unfortunate. The sequence of this process has to be supporting the sector and transitioning it to smaller and more fuel efficient vehicles, and only after that should we contemplate or even debate any form of tax increase. Now is clearly not the time.

We saw from the other side LandCruisers being deemed to be luxury cars. Vehicles with safety modifications and additions unintentionally fell into the category of luxury cars. It was coarse. It was poorly put together and poorly conceived. Let it be a lesson. We have had yet another episode of painful and often non-productive debate with this government over how to do something as simple as slightly modify a luxury car tax. There has not been a case made for change. There has not been a case made that this is the right time. There has not been a case made that this is the right sector to target. There has not been a case made that we should be taxing Australian made vehicles prior to delivering assistance packages to allow our plants to move towards smaller and more fuel efficient vehicles. It is with great reluctance that we find ourselves supporting these amendments. They were the best that could be achieved given the conditions and the time available. I think this legislation will come back to haunt the government. I think the car industry has a lot of tough times ahead. I think people will look back on 2008 and remember that a tax hastily conceived at the start of 2008, and rushed and rammed through these chambers at the end of 2008, in the end did more harm than good.

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