In this recent post Matt L considered the Government’s proposal to extend fringe benefit tax (FBT) to employer-provided parking in Auckland and Wellington’s CBDs.
The Government is keen to extend FBT to employer-provided parking because the parking being provided has a fairly high (market) value. Hence, in these locations employer-provided parking constitutes a significant non-cash benefit, or a “perk” in common parlance. In principle, the logic behind the proposed change is sound. Given this logical background, much of the opposition to the tax has been what I would call suspiciously vocal.
Under normal circumstances you would expect a fundamentally logical proposal to attract comments like “it’s a good idea, but issues x, y, and z need to be addressed.” If opponents to the extension of FBT to employer-provided parking were advancing arguments of this type, and the issues they were identifying had merit, then I would not be writing this post. What does not wash, however, is how opponents to the FBT change seem to be 1) failing to acknowledge the issues created by the current tax treatment and 2) advancing highly emotive and apparently spurious arguments in support of their position.
The most emotive arguments are originating from unions. Unite leader Matt McCarten, for example, was quoted in the Herald as saying:
… the tax could see night shift employees lose their work car parks, forcing them to walk to their cars parked away from their workplaces in “at unsafe hours in some of the most unsafe parts of the city, risking assault and rape“.
Which naturally causes you to think OH MY GOD PEOPLE ARE GOING TO GET RAPED OR ASSAULTED IF THE GOVERNMENT EXTENDS FBT TO CAR-PARKS. This is what I call an “FBT WTF” moment.
If people walking to their car after work are at risk of being raped or assaulted, then does it not also stand to reason that people walking to their home after work are at similar if not greater risk? And Matt M should know that many people employed in low-paid shift work in the CBD actually live in the CBD as well. The fact that these people can walk to and from work is possibly, just possibly, what attracts them to working there in the first place. Why does he seem to think that employees who walk to cars after finishing work are at greater risk than employees who walk to other destinations?
It may be that Auckland’s criminals are specifically targeting employees who drive to work. That would be rather clever; drivers certainly are on average less fit than their pedestrian-powered colleagues. In which case, maybe Matt M is right, maybe employees that drive to work should be seen as weak and vulnerable wildebeests limping around the CBD savanah while merciless criminals stalk them like hungry hyenas from the shadows. But putting powerful “Lion King” imagery to one side, one does have to wonder whether the risk of being raped or assaulted while you walk to your vehicle after work is quite as high as Matt M makes out.
To provide you with an anecdotal (but real) example, I have been walking home from the CBD late at night on many occasions in the last decade (usually alone, mwahhh mwahhh) and I’ve never had any of these hungry hyena criminals chase me. Now I do understand that I’m not the most attractive (or feminine) social-democratic watermelon in the fruit bin, but I do ride a girl’s bike. I mean goodness gracious, if the risk of being raped or assaulted was as high as Matt makes out then maybe we should require CBD employers fly their employees home in helicopters? Unfortunately not all of us proletariat have rich friends who own helicopters …
Which brings me nicely onto Banksie – who had this to say about the FBT changes:
“I think it is very damaging for small business, particularly in CBD Wellington or Auckland … CBD Auckland is struggling. Small business in the Queen St and precincts are really hurting. It is not easy.”
Oh really? A tax on car-parks is going to hurt small businesses on Queen Street? The same Queen Street that has, like, zero car-parks? Hmmm … can’t fault your logic there John. The other thing to note is the use of the word “small” in front of business. Is he right? Will the costs of the FBT change be borne disproportionately by small businesses? I think not.
Let’s put our thinking caps on for a second and answer this question: Consider two companies; company A which employs 1,000 people and company B which employs 10. Of these two companies, which do you think is more likely to provide free parking for employees? I think you’d have to be a deranged hyena to answer Company B. It seems obvious to me that large companies go for bigger, newer buildings that are far, far more likely to have car-parking attached to them. They also tend to be sucky employers who use taxpayer funded perks as a way of coaxing employees to stick around.
Here’s a real world case study, which demonstrates the (supposed) parking requirements for a NZ-based global dairy giant (who shall remain nameless), which is currently looking for a new corporate HQ in Auckland’s CBD:
This suggests F%&$#@~a want a total of 200 car-parks for their employees. In comparison, the company I manage employs about 10 people. And how many car-parks do we have? Zero, zilch, nada. There you have it: Another undeniable personal anecdote that is slightly less emotive than the arguments advanced by the opponents to the FBT change. More seriously, my gut feeling is that while SMEs do account for 80% of the commercial sector (i.e. they are a large proportion of all businesses), they probably do not provide an equivalent proportion of free car-parking for employees – hence they will be impacted disproportionately less by this change than big business.
Once one gets past the emotional hyperbole about rapists and small business, there is one somewhat substantive argument advanced by opponents of the FBT change in support of their position, namely the issue of “compliance costs”. High compliance costs are usually a valid reason to oppose a tax: After all most taxes are designed to collect revenue, so it would be pointless if the costs of complying with said tax outweighed the revenue that it generated. In such cases the Government would be better off taxing businesses through existing broad-based taxes, such as corporate tax.
But in this situation the compliance cost issue is, I think, a big fat red herring (BFRH). The reason it’s a BFRH relates to the very essence of FBT, namely that the tax is designed to stop employers from providing non-cash benefits, such as free parking, to their employees. And if employers stop providing free parking to their employees, then they won’t get hit with FBT and, by extension, they will avoid the dreaded “compliance costs”.
Stated differently, the opponents to this change are trying to portray FBT as a tax meteorite they cannot dodge.
In reality, employers do have a choice. And quite frankly they’d be stupid to keep doing what they’re currently doing, because in doing so they would incur a tax rate of 50%. Thus the whole idea of FBT is to stop employers from paying their employees non-cash benefits. The best way to avoid taxes on cigarettes is, you guessed it, to stop smoking. Or buy all your ciggies at the airport …
Anyway, my key point is that the compliance costs of extending FBT to employer-provided parking will, for most rational small businesses like mine (hah!), be close to zero – because they will stop doing it. Similarly, the revenue the Government earns from extending FBT to parking will be close to zero. But this does not mean the tax change is pointless from a revenue perspective, because the value of employer-provided parking will now flow through normal (broader) taxes, such as PAYE and – to a lesser extent – corporate tax. Both of which have lower compliance costs than FBT FYI.
Interestingly, it seems David Farrar over at KiwiBlog came to a similar position. Social-democratic watermelons of a feather flock together huh?
Ultimately, the suspiciously vocal opposition to the extension of FBT to employer-provided car-parking seems likely to originate with organisations that are guilty of putting their hand in the tax cookie jar – and now they are squealing like little piggies about the lid possibly being slammed shut. When you look at the issue in a relatively objective light then changes to the tax treatment of employer-provided parking seems to be something that obviously needs to happen at some point (NB: Opponents would do well to start every sentence on this topic with a statement to that effect, lest they wish to undermine their credibility even further).
I’m sure there’s a worthwhile debate to be had about whether FBT is the best way to slam shut the car-parking cookie jar – and that’s a debate I’d like to have. Without the hyperbole.