David Bushby (Tasmania, Liberal Party) Share this | Hansard source

I find it slightly surreal that I am standing here again to speak on this suite of bills so soon after I did the same thing some few short weeks ago. The fact is that the government had every opportunity to educate, lobby and negotiate on the Tax Laws Amendment (Luxury Car Tax) Bill 2008 and related bills prior to them being voted on at that time. The budget was handed down over four months ago—that is right: over four months ago. So between then and the vote some two weeks ago there was no shortage of time for the government to sit down with the opposition to work through our concerns and to discuss in a cooperative and meaningful manner our very legitimate worries about these bills—about their effect on the Australian car industry and the parts suppliers it supports and the grave effect on farmers, tourism operators, families and Australians who live in rural and regional parts of our great nation.

We in the opposition are not unreasonable people. We would gladly have sat down and discussed amendments that we believe could allay some of our fears about the dire consequences these bills will have on Australian businesses and everyday Australians. But no attempt was made to talk to us about these concerns or to try to allay our fears. In that four-month period we did have the time and the opportunity for the Senate Economics Committee to conduct a full inquiry into the effect of these bills. We had the time to travel across the nation and take evidence from witnesses ranging from the Australian car manufacturing industry through to local car dealers, motorist representative organisations, car clubs and academics. This evidence, time and time again, highlighted the folly of this suite of bills. It highlighted how the bills are simply bad policy and, most of all, that their stated aim—to add to the budget bottom line—was not likely to be achieved in whole, or even at all, because of the behavioural effects of increasing prices in a highly competitive environment. This is already leading to reduced sales and a consequent reduction in the quantum of the luxury car tax raised.

Despite the almost unanimous presentation to the inquiry of very concerning evidence—which I might say was on the whole, inexplicably, dismissed or ignored in the findings of the government majority report of the committee—the government still failed to sit down with the opposition to discuss issues that clearly required more thought. These were issues we would gladly have discussed with the government and worked through, if given a chance. But, no, the government chose not to take up this opportunity. They did appear, belatedly, to have tried to negotiate with others in this place. But even then they failed to take seriously the fact that the Australian people at the last election expressed a clear desire for the government to be consultative and flexible in their legislation by returning a Senate of the current make-up. This approach by the government is in itself very surprising and counterintuitive, given the strong campaigning by the Labor Party before the last election calling for a return to just such a Senate make-up.

As a result of their lack of seriousness in their approach to these matters and their failure to accept the need to negotiate to deliver an outcome addressing the obvious flaws in their proposed legislation, they failed to get their legislation passed into law two weeks ago—and rightly so. If the government are serious about ensuring they get their legislation passed, they need to satisfy a majority of members of this place that their legislation is good legislation; that it contains a minimum number of flaws or, even better, none; and that such legislation will not impact unduly on Australians. In this they failed miserably when last presenting this suite of bills. But here they are back again, two weeks later. What is different now? Why is this government trying again? Because now they appear to have capitulated to the concerns of others in this place. They have acknowledged their error in trying to ram through legislation without accepting the legitimate role of this place as a house of review.

The government have caved in and compromised. However, the time lines in this are also interesting. In the period of four months between the budget and the first vote on these bills in this place, they refused to take the opportunity to negotiate on the worrying aspects of these bills, ignored almost unanimous and compelling evidence from many reliable sources and rammed their highly flawed bills through parliament. They had four months to get the legislation right but they did not get it right. And in the two weeks since the first vote the government have rushed through negotiations with some senators to try to deliver these bills in a manner that they hope will receive the approval of the majority of the Senate.

What do we have before us as a result? We have a mishmash of rushed amendments designed to do a deal to get the bills passed. These amendments are not carefully considered and crafted. They are not changes that will still deliver much of what the government is trying to achieve without the very negative and unsavoury consequences for Australian businesses and consumers that the original bills would have had. This is because these proposed amendments simply do nothing to address most of the problems these bills will create.

But there are answers that could solve this conundrum for the government. There is an approach that could help the government deliver its stated aim of raising considerable funds for the budget bottom line while at the same time significantly alleviating much of the negative baggage that the bills as they stand carry with them. It is obvious that the amendments proposed by the government as part of its deal to assuage the varying concerns of various senators in this place will lead to a significant reduction in the estimate of funds raised. So, in that respect, the approach of the government today in seeking to introduce a mishmash of convoluted exceptions to the luxury tax hike is in no qualitative way superior to the far preferable approach I refer to. This approach is the one foreshadowed by the opposition in the amendments it will introduce in the committee stage. This approach would be a far more elegant way of dealing with the disastrous effects of the proposed luxury car tax hike on purchases by farmers and tourism operators. It is an approach that would almost completely excise the onerous effect of this tax hike on the Australian car industry by introducing a second limit at which the higher rate of luxury tax cuts in. It is a shame that the opposition has had to do the government’s job for them. If the government had asked us we would have helped them, because the problems can be fixed.

It is probably appropriate at this point to restate what some of these problems are in the bills as they stand, as I did in my comments in this place some two weeks ago. As I noted then, the government has budgeted $555 million over four years for the savings from this measure. But the evidence from the Senate inquiry clearly demonstrated that this figure is purely conjectural at best and, in all likelihood, unlikely to be realised. The fact is that this figure is based on first-round effects only. It is calculated on the basis of a pure change in the rate and assumes very little, if any, elasticity in demand for the vehicles priced above the threshold. It takes no account of the effect on the local car industry, of the loss of jobs it is likely to cause in that industry and its support industries, of the inevitable reduction in investment in new showrooms and head offices by car sales businesses and the local industry and car importers, and of the consequences of these effects on government revenue. The reality is that buyers of cars around the threshold for this tax are highly price sensitive and there is a high level of price elasticity.

The sales evidence for July and August of this year clearly proves that the sales of cars above the threshold will dramatically fall as a result of this measure. The evidence we received at the Senate Standing Committee on Economics inquiry into the bills is that there is a point at which higher elasticity of demand firms into inelasticity. The evidence was variable on where this point was but suggested it was at least $125,000, maybe higher. Put simply, the higher the price of the car the more likely the purchasers are people who have means to pay the cost of the car plus whatever taxes might be put on it. For example, buyers of Aston Martins, Porsches and S-class Mercedes—cars that cost many hundreds of thousands of dollars—are more likely to be in a position to fork out the extra imposition proposed by these bills. This is probably even more so when looking at the purchasers of $1 million-plus Rolls Royces.

As I noted two weeks ago, and as referred to by my colleague Senator Eggleston, it is not in the Rolls Royce price range that the government will make the bulk of its money on this tax. The importers of Rolls Royces in Australia reported a total sales figure in Australia over 2007-08 of just 17 cars. Despite government rhetoric, this is not where the government intends to raise the funds it says it expects to. Between the threshold of $57,180 and around $75,000 is where the vast majority of the cars attracting this tax are sold, and it is where the vast majority of tax takings will be generated. Indeed, the facts show that almost 60 per cent of all vehicles incurring the luxury car tax are priced below $70,000, so this is the price range where the effect on sales figures of this tax hike needs to be examined.

The trends apparent from sales figures for July and August of this year and the advance orders being received by car retailers report a huge downturn in this very price range. Clearly, if the first or even second round effect of the proposed tax hike is a part of the cause of this trend, the tax hike itself is likely to be counterproductive. As such, the potential increase in the take by the government as a result could be far less than anticipated. As I noted two weeks ago, some car retailers even suggested during the Senate committee hearings that their figures and experience suggest it could even cost the government money as the sales of the cars within the threshold range fall to such a low that less tax is generated. But, again, as noted two weeks ago, the problems with the measures contained in this bill extend further than just the remote likelihood that the government will achieve its budgeted revenue out of this tax hike.

The facts, supported by the evidence, are that the tax hike will likely have perverse results on local car manufacturers, on incentives to fit and the availability of safety equipment and environmentally friendly technologies and will decrease the possibilities for those on lower incomes to access cars better equipped with safety and improved technology. The reality is that most cars around the threshold and up to $100,000 are bought by people who simply do not have the means to purchase a car in the $100,000-plus range and who have to be careful with their money. They love the safety features of these cars, and they love the efficient new environmentally friendly technology of these cars. But they do not have unlimited resources.

As such, they buy the best car that comes with the most features they desire and can afford. The price of these cars is vital to their purchasing decision. Adding to the price of cars within this price range will seriously impact upon the purchasing decisions of those who buy them. They will either have to buy a car without the full range of specifications they would prefer to have at a price comparable to the pre-tax hike figure or not buy the car at all. In making such a decision they may be forced to abandon the choice to purchase additional airbags or the latest dynamic stability control, or even be forced to purchase a non-hybrid version of the same or a different car.

Sure, the amendments proposed by the government today will exempt cars with high levels of fuel efficiency, but this does not necessarily equate to exemptions for all cars that are equipped with the latest environmental technologies—for example, the Lexus hybrid. It also does not equate to an exemption for purchasers of cars with innovative safety features, again, forcing Australians on a budget to pay the money they might otherwise have paid to add an innovative new safety option to the government, at their and their family’s ultimate risk. Even worse, these amendments do not exempt any Australian made cars. They amount to an exemption for top-end Alpha Romeos, BMWs and Saabs. So good on you if you can afford one of those—no luxury car tax hike for you. But, if you want to purchase a well-equipped Australian made Ford Territory, you get no exemption.

As I noted two weeks ago, it is a generally known rule in the business of car retailing, as confirmed by evidence at the committee hearings of this matter, that the base models that turn over the highest volume also have the lowest retail margins, and that the viability of many retail operations depends on the much higher margins that are applied to the higher spec models. The evidence also shows that car manufacturers in Australia rely on this principle—that is, that the top end sales of Calaises, Statesmans, Caprices, HSVs, fully loaded Toyota Orions, Ford G6Es, XR8s, Territorys and FPVs contribute more to the viability of car manufacturers per car than do the base models. This is where the government is seeking to attack local car manufacturers and retailers of locally made cars: right where they make the margin that makes them viable. I find this unbelievable. This is a government which, as one of its first acts, commissioned a review of the automobile manufacturing industry in this country and which has declared how it stands with that industry, how it is its best friend and that it will see it through the many challenges it faces. But these words, like most of those emanating from the mouths of this government’s representatives, are very hollow ones.

One only has to look at the evidence provided by the Australian car manufacturing industry itself, and I encourage every one of my colleagues in this place to do so before they cast their vote at the end of this debate. They make it absolutely clear that this tax hike will have disastrous consequences on the viability of the local car manufacturing industry and the retail car industry across our nation. For this reason above all others I find it inconceivable that any senator in this place could even consider this tax hike. In the face of severe challenges, the local Australian car manufacturing industry is doing a great job designing and producing quality innovative products, many of which are exported across the globe. But it does face many challenges. I simply cannot understand why the government would deliberately place another major hurdle in its path.

Two weeks ago, I noted in this place that the luxury car tax hike will also have a serious impact on the delivery of innovative safety options on new cars in Australia. History shows us that almost all innovations in safety equipment have been developed at significant cost by major luxury brands. These include ABS brakes, airbags, electronic stability control and traction control. The manufacturers of these high-end cars need to price their cars accordingly to cover the substantial development cost of innovative safety features. As such, when first developed these features are not readily available on mass market cars. However, as the technology is proven and as economies of scale kick in, these technologies do become available in what is termed the trickle-down effect. Progressively, less expensive cars gain them as an option and then as standard until over a period of years these features are available on even the least expensive vehicles. The relevance of this to these bills is that their passing would work to delay the trickle-down effect on the introduction of this technology, thereby delaying the benefit of them to Australians at given pricepoints.

There is no doubt that the luxury car tax is a tax on innovation, even as it stands. But to increase it further makes it even more likely that it will take longer before we see such innovations in Australia on lower and middle priced cars. Quite clearly, I am not saying that the passing of these bills would lead to less safe cars being built or imported into Australia. On the contrary, what I am saying and what the evidence at the hearings supported is that Australians buying cars to a price will sacrifice some of these new features in order to afford the car and the newly raised tax. Similarly, some manufacturers and importers will build and import cars without some of these features in order to remain competitive on price—all at a loss for Australian consumers.

I am also astounded that the Labor government, supposedly the custodian of social justice and equity, would want to make it harder for people who are less financially able to afford cars that are well equipped with innovative and improved safety features. I would have thought that a Labor government would be looking to bring the price of such vehicles down, so that more Australian working families could afford them. But no, here we have a government saying, ‘No, let only the rich have them.’ What happened to equity in the Labor Party? Are they really looking to create a world in which there are two classes, first, the very rich, who can afford the best of everything, and, second, the rest, who have to accept mediocrity in all aspects of their lives?

The simple fact is that the only rationale that the Rudd Labor government has for pursuing this tax hike is to hit the rich. The irony is that in increasing the tax they put those cars they refer to as luxury cars further out of the reach of many Australians. I am also astounded by the claim that the tax hike will somehow curb inflation, when the proposed luxury car tax will increase the price of 12 per cent of cars sold in Australia, including the most common luxury car, the Toyota LandCruiser wagon, and a whole range of locally made vehicles. This tax hike will put the price up for these cars. This is inflationary; it is not deflationary.

Contrary to the constant bleating by ministers in answer to just about every question posed to them, given the momentous and very serious economic ructions taking place in the international economy—particularly those originating in the United States—the most likely economic challenge we now face is that posed by a slowing economy, not an overheating one. In an overheating economy, withdrawing money from the economy through the retention of a significant surplus is one tool that might be employed to attempt to cool it to avoid inflationary pressures.

However, the same conclusion does not follow in a slowing economy. On the contrary, in view of the impending worldwide economic downturn, a responsible government is likely to need to look to employ both fiscal and monetary policy to stimulate the economy, not dampen it. This means giving more money back to the people—putting more money back into the economy—to increase economic activity. Through fiscal policy, this is achieved through either tax cuts or increased spending. Through monetary policy, it is achieved through interest rate reductions.

The new Leader of the Opposition was warning the government in February of this year that the international economic climate was likely to have a strong dampening effect on the Australian economy. The government ridiculed him at the time. Now the government admits that he was right and acknowledges the serious impact that the international economic climate is likely to have on our economy. But it has yet to change its rhetoric or admit that with its acknowledgment of that threat must come an entire reversal of its fiscal policy. If it accepts that the international economic crisis presents a threat to our economy, then it must look to measures that stimulate, not dampen. As such, the need to withdraw money from the economy to cool it no longer exists. On the contrary, it should now be looking to put money back into the economy to ensure that economic activity remains at levels sufficient to avoid job losses, business closures and bankruptcies. Accordingly, the approach of the opposition in opposing these bills is in effect doing what the government should be doing but will not or cannot admit that it should do. (Time expired)