March 18, 2013 11:00am by David Farrar

Herald on carpark tax

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.