Andrew Laming (Bowman, Liberal Party) Share this | Link to 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.

Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

I thank the honourable member for Bowman. I must disappoint him, as I gather he is not the last speaker on this bill. I understand the honourable member for Groom is seeking the call. If that is the case, I call the honourable member for Groom.

Ian Macfarlane (Groom, Liberal Party, Shadow Minister for Energy and Resources) Share this | Link to this | Hansard source

Mr Deputy Speaker, I am seeking the call because the car industry in Australia is not only very close to my heart but also very close to the heart of anyone who believes in having a manufacturing sector in Australia. We have heard from the Prime Minister at various times how he never wants to see this nation not producing or not making anything. I must admit that, in his time as Prime Minister, he has not actually backed that rhetoric with actions. Instead he has introduced a tax, a tax which is so symptomatic of the problems of this government, that will in fact impact on the manufacturers of Australian cars—particularly manufacturers of Australian cars that have been the backbone of the automotive industry in this country for a very long time, for more than half a century in fact.

It is ironic that we come to this place from time to time to see the government take positive action, and they did take positive action in relation to the car plan—$8 billion is by any measure positive action. But in actual fact as part of that $8 billion they were giving back to General Motors Holden and to Ford Australia money that they were taking off them in the luxury car tax in the Tax Laws Amendment (Luxury Car Tax—Minor Amendments) Bill 2008. They were saying to them, ‘Our economic policy in the automotive and manufacturing area is so confused that in May we are going to put up the luxury car tax by over 30 per cent to 33 per cent.’ That is on top of the GST, so we have a government that is increasing an extra tax. So confused are they though that they come back to this place in November and say, ‘Well, we’ve got to give the industry $8 billion to remain afloat.’ I certainly applaud that. And now of course here we are today trying to amend what is basically a mess. It is a mess because it is policy made on the run and it is an example of the politics of envy that we so often see from those who sit on the other side of his House.

In the days when the Treasurer oft repeated claims that the inflation genie was out of the bottle, the luxury car tax grab was an attack—as the member for Lindsay so eloquently said on behalf of his party, a tax grab against ‘conspicuous consumption’. Those on that side have decided that it is all right to buy a Cartier watch or whatever takes your fancy, but that it is not all right to buy a luxury car. If your family has more than five children, do not buy a car that is bigger than a sedan—a people mover or, more likely, a four-wheel drive; do not buy one of them because that is conspicuous consumption. They are saying, ‘We have a party here who are railing against conspicuous consumption, who want to attack those families who need a vehicle that costs more than $57,000. Instead of saying, ‘We understand that necessity,’ they say, ‘We’re going to brand you as conspicuous consumers.’ What a deplorable thing to say.

To add to that, they are also saying they are quite happy to tax those people who live in rural and regional Australia where a four-wheel drive is anything but a luxury and anything but conspicuous consumption—it is an absolute necessity. It is an absolute necessity for those wonderful occasions when the heavens open, the rains fall and the roads become boggy, but it is also an absolute necessity at those other times when the roughness of the roads, the ruts and the debris that sometimes falls on those roads mean that if you want your wife and children to travel in safety and in the surety that they will arrive at their destination then you are going to buy a four-wheel drive vehicle.

Of course, you also have small business people who buy four-wheel drive and so-called luxury vehicles as a means to conduct their business. We have seen a debate in this House about how important it is to ensure those businesses continue. This is a government that stand up at the dispatch box and say: ‘We are on businesses’ side. We want to encourage people to invest. We want to make sure the economy keeps going.’ But then at the first opportunity they introduce an even bigger tax on some of those small businesses.

The vehicles in this price range are not the Ferraris, the Maseratis and the Porsches that we see the Prime Minister so deceptively refer to any time anyone dares to query this tax grab. These vehicles in this sector are predominately four-wheel drive vehicles. They are predominately vehicles that you and I and other members of his House see regularly in our electorates. These are vehicles which, as I say, are used for business; they are vehicles which are used by larger families; they are vehicles which are used by those people who need these sorts of vehicles to allow them to communicate and transport themselves and their families in a way that you and I perhaps take for granted. When we see taxes like this targeted against conspicuous consumption, against what the Labor Party see as a luxury, it underlines the fact that they have begun in government their war on aspiration. They have wanted for a long time to be in government, and having attained that position their first attack is on that fundamental quality that has made Australians great—that is, aspiration.

When we were in government we wanted to encourage a culture of aspiration, and as the previous government we encouraged it. We wanted everyone to increase their feeling of wellbeing. That is why under our government we saw real wages increase by 20 per cent after inflation. That stands in very stark contrast to what we saw from the previous government when real wages actually fell. Having increased real wages, our government set about lowering taxes with tax reform never before seen in Australia with the introduction of the new tax system—with reforms that Paul Keating when he was Prime Minister never had the courage to implement. Though we know there were times when the Labor Party under the prime ministership of Bob Hawke wished they had the courage, in the end they did not. And so we are now seeing the Labor government attack an area where they see they can do so without political retribution, because in the end there is no economic strategy to what they are doing. They are in fact a government devoid of strategy when it comes to the economy.

As I said in my opening comments, this legislation is symptomatic of a government with no strategy for the economy, at a time when we desperately need to see strategy and when we desperately need to see a government that is surefooted when it comes to dealing with the global financial crisis. We actually have a government who have no strategy and no idea of how to deal with it and who are continually making mistakes that they are not prepared to correct because they do not want to admit they have made mistakes. They do not want to admit that they made a mistake on the deposit guarantee. They do not want to admit they made a mistake on the wholesale lending guarantee. So in the global financial crisis, which we know the rest of the world is experiencing, instead of Australia being in a strong position to deal with it thanks to the previous government, who lowered taxes, got rid of government debt and raised surpluses, this government introduced $20 billion worth of new taxes and we have gone from having a GFC to having a KFC. Through a whole series of mistakes—and this legislation is part of it—they have actually exacerbated the impact of the global financial crisis here in Australia.

At a time when the government should be instilling confidence in Australians in the economy, we have seen a confused message that has ebbed and flowed across the page depending on what this week’s research is turning up as to whether or not the inflation genie is out of the bottle or whether we have to prepare ourselves for a deficit in the budget. ‘Deficit’ is a word that they did not dare speak three or four days ago, but they are now saying that we are heading into a deficit. It highlights that, despite the fact that the now Prime Minister said when he was in opposition that he was a fiscal conservative, he is now surrendering all fiscal discipline. Tax grabs, like the luxury car tax, whenever he can apply them, combined with poorly designed legislation right across the board, is how he is managing the current financial crisis. Every day, instead of talking up the economy, we have a government that are talking us into recession and deficit. Increasing the taxes on consumer goods such as motor vehicles only adds to the uncertainty and the fact that consumers are now not sure what they should be doing.

As part of that overall process and the overall lack of understanding of how to run an economy, we are seeing mistakes in the legislation coming forward continually. This particular legislation on luxury car tax has been hastily thrown together and it is an extraordinarily ineffective piece of legislation. The coalition has always recognised the blatant flaws in this legislation, but the Labor Party has pressed ahead with it anyway. As the law currently stands less than half of Australia’s farmers and tourism operators are eligible for the luxury car tax surcharge exemptions, which the Labor Party trumpeted after it realised it had made a monumental mistake with this legislation. Only half of those who are affected by this have been able to access the exemption under the legislation as it was carried—only half, not because of conspicuous consumption, which the Labor Party wants to go to war on, or for buying a luxury good but because of buying something that is essential to their daily lives or businesses. Hence, we have a need for these so-called minor amendments. Of course, we support these amendments because they provide for those people who understand the necessities of life. People who need a four-wheel-drive vehicle or a larger vehicle—a vehicle worth more than $57,000—should be able to access them without an increase in the luxury car to 33 per cent tax.

These mistakes are the direct consequence of Labor arrogantly pushing through—did we just have a glitch in the audio then?

Government Member:

Government member interjecting—

Ian Macfarlane (Groom, Liberal Party, Shadow Minister for Energy and Resources) Share this | Link to this | Hansard source

Yes. You can use them any time when your guys are speaking too!

Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

We have some gremlins in the system.

Ian Macfarlane (Groom, Liberal Party, Shadow Minister for Energy and Resources) Share this | Link to this | Hansard source

I am a farmer; give me a screwdriver and a hammer and I can fix it.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

Let us hope, Member for Groom, that we do not have to go down that road.

Ian Macfarlane (Groom, Liberal Party, Shadow Minister for Energy and Resources) Share this | Link to this | Hansard source

Yes, probably a good hope to have. This mess we now find ourselves in with the luxury car tax amendments is a direct consequence of the Labor Party arrogantly pushing through a tax grab without proper consultation and without taking the time to examine the consequences of what they were doing. We would like to think that this is a rare occasion, but of course it is commonplace with this government—rushed legislation that causes all sorts of discrepancies and distortions. But I guess in this instance, unlike in most, we should be grateful that the government has at least admitted its mistakes and come back to try to rectify them in some way.

What the government cannot rectify is the fact that, as a result of this tax, sales in the car sector have fallen 17 per cent. It said to Ford and Holden, ‘You have vehicles that will attract the luxury car tax but here is $8 billion to help you along.’ But now they have not even got the sales to recoup the loss. A 17 per cent drop in sales says to me that the government has no understanding of the consequences of what it does. It knows from its record that you stand for three things when you are a Labor government. You stand for higher taxes, higher spending and deficits. What we see from this legislation are higher taxes which are affecting consumer confidence. At a time like this, we really should be wondering if this government has any understanding at all of what is going on. An increase in the luxury car tax is a sign of a tax-hungry government and is a sign of things to come. It is a cash grab against 105,000 vehicles owned by 105,000 Australians and their families.

It is a sign of things to come, as Labor rushes ahead with this reckless approach on a whole range of issues. Compared to some of those issues—some of which are yet to come—this is minor. But, if it makes these sorts of fundamental mistakes in this legislation, one can only wonder what will happen when it introduces the greatest economic change Australia has ever seen in the form of the emissions trading scheme, which we understand we will see legislation on next year. There is a growing concern in the financial and banking sectors in Australia but most importantly among the men and women on the street that this government does not know what it is doing. This is just another example of that.

I have no doubt that this is not the last time you will see us in this House mopping up the errors of the Rudd Labor government. We are going to see from this government more mistakes and more increases in taxes. This is bad legislation. It is a bad tax. It is a sign of a government that does not know what it is doing and does not have a strategy for the economy. Labor is tinkering on the side of this legislation to try and fix it before it moves on to even bigger mistakes.

Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

in reply—I thank all honourable members who have contributed to this debate. The Tax Laws Amendment (Luxury Car Tax—Minor Amendments) Bill 2008 corrects some anomalies in amendments moved in the other place by minor party and Independent senators. I would again like to emphasise that these are technical amendments to the legislation. The measures in this bill ensure that the amendments moved in the other place during the debate on the increase to the luxury car tax operate as intended.

I note that one of the provisions being amended was supported by the opposition without the issue of its operation being raised at the time. Now they come in and ‘tut tut’ about technical anomalies that they did not raise at the time. The finance industry and the motor vehicle industry came to the government after that debate and raised their concerns about the interaction of those amendments with the vehicle financing arrangements. We are always more than happy to listen to industry groups, and we listened to those concerns and are acting to provide certainty to car buyers, finance companies and dealers. The measures in this bill are not expected to have any impact on revenue over the forward estimates.

I note from the opening remarks of the shadow minister for trade, transport, regional development and local government that the opposition will not oppose this bill, which we welcome. His remarks were followed by a series of illogical and hypocritical contributions by other members opposite. Many honourable members opposite took the opportunity to discuss the merits of surpluses versus deficits. The inconsistency of those contributions while talking about a revenue measure appeared to pass them by. The hypocrisy of their contributions appeared to escape them, as they complained that the global financial crisis had led to the situation in which a potential deficit was possible while railing against a revenue measure as they continued their opposition to the revenue and savings measures instituted by the government at the last budget. They indicated that they are ferociously and ideologically opposed to deficits at the same time as opposing a government measure to ensure the continued robustness of the revenue base for the taxpayer.

The previous government’s spending record was recently described by Access Economics in terms that would be grossly unparliamentary. I would not think for a second to use those terms in the House, but they are there on the public record for all to see. The previous government’s spending record was described in grossly unparliamentary terms by Access Economics. Their spending was out of control. Fiscal profligacy will always be a mark of the Howard-Costello years. I commend the bill to the House.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.