Business faces carbon tax complexity: Benz

Mercedes-Benz spokesman questions what the country will gain from exempting petrol under the carbon tax
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Motorists will have heaved a sigh of relief on hearing the news that petrol will not be subject to a carbon tax, but who could blame the electorate for being confused by the government's approach to reducing CO2 emissions.

"It's not just about the actual, on-the-ground impact in terms of emissions, it's about the message that you send," says Senior Manager for Corporate Communications at Mercedes-Benz Australia, David McCarthy.

"Is the message that we want to reduce emissions? Oh we do… but we're going to exclude [the major share] of cars."

Community cynicism will flourish as the minority government accommodates different interests held by the cross-bench MPs. It may ultimately lead to weak legislation that smacks of tokenism.

McCarthy should be right behind petrol exemption to keep running costs low for his brand's customers, but he also supports CO2 emissions reduction. As it stands, he doesn't sound impressed by what threatens to be feeble and piecemeal legislation. Nor does he believe there will be any significant incentive for motorists to reduce CO2 emissions — and the tax will impose considerable tax reporting burdens on business.

"If it's done through the taxation system, sure as night follows day there's going to be a lot of paperwork," McCarthy warns.

"How are they [the government] going to do this? It's obviously going to be part of the business activity statement, or the company's annual return. And for the individual, it's going to be a rebate on your tax... How are they going to work it?"

According to the Benz exec, simplifying the tax system with particular regard to the carbon tax would leave the way open for tax avoidance schemes. It won't be stringent enough to meet the government's needs.

"How are they going to make it un-rortable?" he asks.

Furthermore, it's inequitable, McCarthy argues, that big business must pay carbon tax, but not small business and private individuals. And where does one draw the line between small and big business anyway, he asks? An owner/operator with a DHL banner on the side of his van, for instance? A towing firm with three trucks?

McCarthy believes that one unforeseen consequence of the carbon tax will be the way it shapes competition between different vehicle fleet operators. There are more savings to be had, relatively, in respect of running costs by upgrading to a new truck than upgrading to a new car. Truck manufacturers are finding substantial gains in engine efficiency and fleet operators that can afford to replace their trucks will reap the benefits. They can even claim more against their tax for the new vehicle's depreciation. Fleet operators who can't upgrade will pay more in carbon tax and will be at a competitive disadvantage.

So there are likely to be many unforeseen outcomes of the new tax, but one that will be entirely predictable is this: a substantial part of the electorate will censure the government for the petrol exemption. Road transport in Australia contributes 14.6 per cent of the country's emissions, according to a Department of Climate Change report from 2007. While that figure is relatively low, it's still significant and needs to be addressed in a broader context.

"Either fuel pollutes or it doesn't," McCarthy told motoring.com.au. "So why does the private individual pollute and not pay carbon tax, but a company can pollute — and it has to pay carbon tax?"

"There's no incentive in the pricing of fuel, under this new regime, to drive less — or to buy a more economical vehicle — because the price of fuel isn't affected by the carbon tax," McCarthy continued.

"That's not going to reduce car use."

Certainly, if taxing petrol were likely to drive down the consumption of fossil fuels in any meaningful way, it would have happened years earlier. Petrol and diesel excise have been around 38 cents per litre since 2001, according to Treasury, and there's 10 per cent GST on top of that.

"What's going to reduce car use?" McCarthy asks. "An exhaust emissions tax."

It's an idea that Benz first mooted three years ago when the government raised the luxury car tax (LCT) from 25 to 33 per cent. McCarthy believes that the Benz proposal of a sliding scale of taxation based on CO2 tailpipe emissions would be workable even now. Saving thousands on a new-car purchase would provide a tangible incentive for buyers to find the low-emissions vehicle that suits them.

"If the majority of vehicles sold in Australia are used by individuals, which they are, if they're not going to pay a carbon tax on their fuel then what you want to do is encourage low-emission vehicles.

"One way to encourage low-emission vehicles is things like the seven-litre limit, but that's only [applicable] to so-called luxury cars. Now a car like our smart doesn't pay Luxury Car Tax [LCT]; the Suzuki Alto doesn't pay Luxury Car Tax... so there's actually no incentive other than price to buy that vehicle.

"If you want to discourage high emissions, you do it everywhere else across the economy, but you don't do it in cars?"