Herald on carpark tax
March 18th, 2013 at 11:00 am by David FarrarThe Herald editorial:
A tax on carparks provided by employers might be justified on the principles of fairness and consistency that ought to govern all taxation. A carpark has a clear monetary value and it is puzzling that it was not part of the 2007 legislation which introduced fringe benefit tax to cover benefits that employees receive as part of their employment. Why, after all, should those with free staff carparks receive a substantial untaxed advantage denied those who commute to work by other means?
I agree. The best tax system is one with few loopholes, low rates and a broad base.
The pursuit of principle can, however, be undone if the costs of a policy outweigh the benefits or if it is tainted by its own inconsistency, as this proposal is.
Let’s look at that.
Among other things, the group suggested the tax would net just $17 million for Inland Revenue, while generating additional compliance costs of about $30 million for businesses.
If that is the case, the tax extension should not increase. If compliance costs are greater than revenue it is economically inefficient. I would add a note of caution though that the estimate of compliance costs is one commissioned by opponents. I’d have to read the assumptions to determine how robust it is. So I wouldn’t take it as holy grail. But we should rightly be concerned about compliance costs.
If tax purity is the reason for this exercise, the impost should be applied throughout the country. An employee carpark, like other non-cash benefits such as petrol vouchers, is an advantage whether it is applied in Akaroa or Auckland. It is a perk for the car-driving workers of Whangarei as much as those of Wellington, and one denied those who get to work by bicycle, foot or public transport, even if the last of those modes is also subsidised.
I think the issue her is again benefit to cost ratio. Take the fact IRD does not apply GST to anything you purchase from overseas unless the GST is over $50 in value (off memory). Now that is not purist, but it is sensible as if they tried to impose GST on every overseas purchase the compliance costs would be massive – far more than the revenue.
The same go with the proposed regional differentiation on the car park issue. In many areas the value of a car park is minimal – say $300 a year. It would be as silly to insist on paying FBT on those parks as it would be to insist every employee must account for every single personal phone call on their work phone.
So it is quite legitimate to say we’ll only ask bsuinesses to go to the hassle of calculating FBT on car parks when they are located in an area where the value of a car park is high. If you did not do that, then the compliance costs would absolutely exceed the revenue.
The revenue this tax would gather, $17 million, is a drop in the public bucket. It could be justified only if there were no significant adverse consequences. Accountants Lock & Partners estimate the costs of gathering the carpark tax would be almost double the take.
If their analysis is robust, then the tax should not proceed. Maybe one of the economist bloggers could scrutinise their analysis?
Then there is the damage that may be done to the city centres of Auckland and Wellington.
The capital has already been affected by the layoffs in government departments. Like Auckland, it also faces a struggle to retain businesses. Many small companies, in particular, are constantly assessing whether they would find it cheaper, and no handicap to their business, to move to suburban locations.
I don’t see that as damage. It can be economically beneficial to have a business not be in the CBD. Decisons on whether to be in the CBD or not should be based on the actual costs of doing so, and not false subsidies such as exempting parks from FBT.
The Unite union has warned that if nightshift employees lose their work carparks it would force them to walk to cars parked some distance away at unsafe hours.
I think they have raised a valid concern there.
It should not come to that. Opposition to the tax is widespread and well-founded. The Government sounds no more than lukewarm on the idea. It should drop it.
Oh the tax change is as dead as a doorknob I’d say. I’d just make the point that not all the criticism of it is well-founded. There are some valid issues of concern, but some of the issues cited are over-blown.
UPDATE: And the Government has announced the tax change will not proceed.
Related posts:
- Auckland Carpark vs Invercargill House
- And another clear stance
- Naked revenue gathering
- My Herald column
March 18th, 2013 at 11:06 am
“The Unite union has warned that if nightshift employees lose their work carparks it would force them to walk to cars parked some distance away at unsafe hours.”
Indeed..when working at the Hyatt in Auckland I started my shift at 7 and a fellow employee starting at the same time parked his car just down from the high court where you could get free parking. He came in with blood running down his head..he had been stabbed in the head and they had pierced his brain, he could not longer work or speak after that…by the grace of god and all that…
Vote:March 18th, 2013 at 11:19 am
Presumably this will cover MPs as well . . .
Vote:March 18th, 2013 at 11:25 am
This is seriously the dumbest thing National has had anything to do with in a very long time.
Very little (if any) gain in exchange for widespread disapproval and political damage.
Vote:March 18th, 2013 at 11:29 am
More on this from Peter Dunne in the Herald:
I’d say that is a top end estimate then. There is an implied rate of $81.82 an hour for an accountant to work it out the FBT but equally I’m sure the work could be done by someone on $40 an hour or less. ( 110 minutes x 200,000 carparks = 22m minutes or 366,666 hours. $30m / 366,666 = $81.82) And of course compliance costs will be zero for businesses that don’t have carparks as part of their employment packages. If the compliance costs really are high, then why not pay the employee a carpark allowance as salary?
On Unite’s point, how many nightshift employees have a carpark included as part of their employment package anyhow? Wouldn’t most just be using the visitors carpark, or paying for their carpark personally? Not saying that there may not be Unite workers genuinely disadvantaged by this, but there seems to be a fair amount of hyperbole in the arguments so far.
Vote:March 18th, 2013 at 11:38 am
The compliance costs are not 30 million. They are not even 3 million. For goodness sake just read the legislation. It does not affect night time cleaners at all for instance. they will park in the unused public car park spaces at night. It will not affect car parks of of no commercial value such as in schools. This is just whingers trying to keep their perks.
It is all about fairness.
Employee A earns $2000 and pays for a carpark $200/month
Employee B earns $2000 and is given a free carpark.
A free carpark is a tax rip off. Stop whining and pay your fair share.
Vote:March 18th, 2013 at 11:45 am
OK I agree that this IRD-driven mess is plain dumb/politically dopey … Yadee Yadee etc …. BUT how’s this?
Gummint is looking for revenue? … Right on … or do you prefer gst at 20%? … thought not!
Sooo to make this work …
(1). Set STANDARD car”perk”, cellphone, distance accomodation/sustanance tax surcharge … and
(2). Make all the other work-related benefits taxable to all employees (their packages will be rounded up to reflect this!) AND
(3) While we are at it … allow a deduction for travel “to/from work” for costs not reimbursed …
“Voila” … minimal compliance costs (use of the “standard” idea) and fairness is achieved (travel costs currently are DOH! … not! reimbursed!).
Result: Workable policy without IRD’s dopey rules and/or preservation of existing inequities.
Vote:March 18th, 2013 at 11:50 am
Trouble is – I feel like I am already paying my fair share
Vote:March 18th, 2013 at 11:52 am
Actually I think the biggest problem with the proposal is that it was predicated on a fallacy.
I have 20 years experience in ICT in the Wellington CBD. Employers in that industry at least are not in the habit of giving away carparks. If anything they want to reduce their administrative overheads in managing them by reducing the number they provide.
They give carparks only to those who have deemed legitimate purposes – client facing roles such as sales, management and some IT architect-type roles; those that are meeting with clients for sales and relationship management.
(There is a situation where carparks are leased with floorspace and not separable – in those instances parks may well be given to roles that don’t need them in order for the park to not sit paid for, but unused. IMO these examples – where there are not sufficient justifiable roles to fill all the parks – are not all that common and would not contribute much in additional tax – i.e. like the international GST example, just not worth chasing.)
I disagree that there are many business taking on the burden of managing carparks so that their employees can have a perq at a lower effective tax rate. That is outdated thinking – the likes of the ’80s & ’90s where people would try to switch from being a PAYE employee to a self-employed contractor in the same role just to minimise tax.
Legislation that deemed that a legitimate business expense should be assessed at 50% fringe benefit is fundamentally wrong. The fringe benefit use is after hours and weekend usage. (Which is also quite low IMO – I certainly don’t use mine all that often out of hours.)
At most the FBT should have been assessed at x% rate (50% or not) on 50-60% of the expense – that being the time outside of normal working hours where use of the park is not a legitimate business expense.
Which would therefore have netted $8.5m – $10m and even less worthwhile chasing.
Of course, on the basis that no business should be charged FBT on a legitimate business expense, the sound response by businesses should be (under those conditions) to institute a policy that the parks are provided for business purposes only and not to be used for non-work purposes out of hours. That would provide an incremental tax take of $0.
[And while there are semantic arguments around the business expense still providing some personal benefit, it is worth noting that the FBT would not have applied for company provided cars, where the company would pay FBT for personal use of the vehicle (not at all uncommon) but not on the carpark.]
Vote:March 18th, 2013 at 11:52 am
Is this economic purity or simply madness? Should farmers pay tax for the “free parking” they get at their place of work? Should a trucking company pay tax for parking their fleet in their own yard (after all, if you and I wanted to park our 40 Tonne truck on the street, parking fees would come out of our pocket, and that’s “not fair”) Taxing something just because not everyone has it sounds like a principle straight from the old USSR or DDR. It’s the politics of envy.
Vote:March 18th, 2013 at 12:01 pm
Now we are beginning to witness the ‘truth of governments’.
That truth being, that they ‘ALWAYS’ eventually turn on their own citizens in order to cover up for their own irresponsible behaviour.
NZ is not yet at the stage of Cyprus where this weekend it’s grossly indebted government declared a bank holiday and directly stole money from it’s own citizen serfs bank accounts. The taxes we pay are relatively low c/w European states, but we too are on the same pathway to serfdom. With a so called “fiscally responsible” National Government borrowing billions year after year and no sign of being able to balance the budget, how long before our government really turns on its taxpayers with financial repression far greater than a car park tax in order to pay its creditors? Moreover, in a fully enfranchised model with a dumbed down electorate relying ever more on government to provide for them, how can we escape our long slide into economic oblivion?
The above is trivial in context of a much bigger question…..
http://www.zerohedge.com/news/2013-03-16/everyone-shocked-what-just-happened-and-why-just-beginning
Vote:March 18th, 2013 at 12:26 pm
thas…et al
MPs , Ministers, political appointees et al (think of that Parliamentary underground car park) are employees of the state or Parliamentary Services. The tax is paid by employers. MPs/Ministers will not pay it. Last time I looked we all funded the state via taxation.
There can be no sane defence of this tax proposal. It is bamy and a very good reason (example) why the power of the Executive to tax and spend should be proscribed.
Modern Parliamentary democracies have not moved with the times. But that suits the professional political/ administrative class whose only object is power. The exercise of power requires money. Unless one is Russel red melon with a printing press, money can be obtained only by taxation. Borrowing does not count since it must be repaid from taxes.
Vote:March 18th, 2013 at 12:35 pm
The Unite union has warned that if nightshift employees lose their work carparks it would force them to walk to cars parked some distance away at unsafe hours.
I think they have raised a valid concern there.
————————-
Well I guess that concern is that the streets aren’t safe. Which is why we need another 17 mill for the police force.
seems logical to me.
Vote:March 18th, 2013 at 12:37 pm
Oh, poor Peter Dunne. He’s getting pummelled from all fronts.
Vote:Don’t you feel sorry for the whorish politician?
March 18th, 2013 at 12:50 pm
Meanwhile the McLeod Report is gathering dust.
*Sigh*.
Vote:March 18th, 2013 at 12:52 pm
Maolo …
Agree with your sentiments. But let us not be churlish now that it is almost dead and buried.
The MP for Ohariu-Belmont did not himself produce the idea – from talking with him pre Christmas it came from IRD – but he sure as heck got sandbagged by it. He was warned, about the Key tax differential promise in particular, but took no notice.
Perhaps the sanguine experience might, for the remainder of his term, encourage him to seek, and hopefully accept, advice from beyond the narrow guage of IRD. One hopes.
Vote:March 18th, 2013 at 1:45 pm
Ahem, employer-provided car parking is already subject to FBT. At present, there is a carve-out for if the employer provides car parking on their own or permanently leased premises. The proposal is to (i) remove this anomoly; (ii) confine it to carparks in the Auckland or Wellington CBD (marked as the “Central Area” on the relevant District Plan); and (iii) include carparks if provided by a commercial car park operator for a consideration of more than $210 per month.
Vote:I will leave the balance of the detail to the tax experts – there are some additional points of detail.
The comments about the compliance costs may still be well made – business owners are in a better position to judge.
But the point is that it levels an uneven playing field – the mostly affects SME owners already.
As I have previously noted, the prime example of why the Unite Union has entered the fray (and how this could be a problem) is that of lower paid workers at Sky City who currently enjoy a staff carpark on the premises. There are other examples – late night call centre and IT staff being two further instances.
March 18th, 2013 at 1:48 pm
ACL…
Vote:Thanks for the reminder,
March 18th, 2013 at 2:14 pm
If my boss was getting a free carpark and I wasn’t entitled to one then I reckon that should be treated as a perk,if I had to pay to park somewhere else reasonably handy[as in the Wellington and Auckland CBD.]
Vote:So why not pay fringe benefit tax on those free carparks? The company would pay the tax and it would be up to management as to whether that tax was passed on to individuals[which it probably wouldn't be in most cases].
There might be a few extra spaces which management could give other staff members the right to use providing they were prepared to repay the FBT on them.
March 18th, 2013 at 2:14 pm
It just died
Tax Status Of Carparks To Remain Unchanged
===============================================
Press Release by New Zealand Government at 2:03PM, 18 Mar 2013
———————————————–
The Government will not continue with a proposal which would have changed the way some employer-paid carparks in central Auckland and Wellington are treated for tax purposes, Finance Minister Bill English and Revenue Minister Peter Dunne say.
Vote:March 18th, 2013 at 2:19 pm
see what happens when he whorish one has to sit on an old 737 instead of the new airbus??
he gets angry that his free flight isnt better and comes up with shit like this.
surprised PG isnt here telling us how amazing this idea is
Vote:March 18th, 2013 at 2:26 pm
http://www.stuff.co.nz/national/politics/8440084/Government-ditches-controversial-car-park-tax-plan
Yep, it’s all over. I reckon they should now look at charging GST on all private purchases made from overseas company’s.
Vote:A lot more tax to be gained from that than from free carparks.
March 18th, 2013 at 2:52 pm
As soon as Unite jumped into bed with employers, you knew this tax was going to be a hard sell.
Vote:March 18th, 2013 at 3:41 pm
Every year I introduce into my tax records attributable income. This is that benefit from Trust which in other circumstances would be income, therefore attributable income
Vote:March 18th, 2013 at 8:28 pm
The $30m figure is absolute rot. They have based it on 200k carparks. There wouldn’t be 200k carparks in AKL and WGN cbds, and only a small proportion would be relevant to this tax. In any case it is clear the $17m revenue figure is base on closer to 20k rather than 200k carparks. So someone just made shit up, and it appears the government listened to them?
Vote:March 18th, 2013 at 9:48 pm
Now we shall see whether a similar commonsense approach will be taken with the other IRD proposal – a tax on mobile technology. At a time when businesses and public services are seeking to improve productivity by using new technology, such as laptops and mobile devices, it seems inconsistent for the government to tax personal use of mobile devices where an employer decides to allow such personal use. It should be up to businesses to decide their own policies on usage of phones and laptops – not a State agency.
Vote: