On 13 August 2012, the Government’s Business Tax Working Group (BTWG) released a discussion paper proposing that the company tax rate should be reduced from 30 to 25 per cent in the short to medium term. Its terms of reference required it to put forward savings to fully offset the cost of the rate cut, estimated at $26 billion over the forward estimates.
One of the options in the paper, option B.6, would be to remove the statutory effective life caps for depreciating a range of transport assets, including aircraft, buses, ships, and trucks and trailers. Removing the caps on trucks and trailers would save $205 million over four years – 0.8 per cent of the savings required.
This submission uses industry evidence and financial modelling to show that removing the statutory effective life caps on trucks and trailers would impose a significant cash flow burden on trucking businesses, despite the proposed cut in the company tax rate.
The cash flow gap would be $4,163 per year for each typical prime mover.
This cash flow gap would reduce operators’ ability to purchase new trucks and renew their fleets with the latest equipment.
Vehicle safety and emission standards are imposed on new trucks, not on all trucks in service. As a result, slowing the rate of new truck purchases would slow the rate that safety and environmental standards are rolled out across Australia’s truck fleet.
These standards aim to reduce the $17.85 billion yearly cost of road accidents and the $2.7 billion yearly cost of motor vehicle pollution. Slowing the rollout would delay their economic benefits, and would also conflict with existing Government policy.
The submission recommends that:
- the BTWG should continue looking at options to reduce the company tax rate to 25 per cent but
- it should not further consider removing the statutory effective life caps on trucks and trailers, because:
- the option would impose an additional cash flow burden on trucking businesses, which would reduce their ability to renew their fleet
- it would slow the rollout of safety and environmental standards that aim to mitigate the $17.85 billion yearly cost of road accidents and the $2.7 billion yearly cost of motor vehicle pollution
- it would conflict with the Government’s existing road safety and air pollution policies and
- despite all these problems, it would only generate 0.8 per cent of the savings needed to offset the proposed company tax cut.