Look what happened to the carpark tax … a few yelps, a quick U-turn, and it’s vanished

It took a while for the shit to hit the fan.

In the upshot, Peter Dunne has been spattered more than we Nats. Just as well.

Fairness might have been run over, too, but too hell with fairness. This was all about a threat to our getting re-elected.

Remember what came out of Dunne’s office (see here) back in October?

Revenue Minister Peter Dunne announced today that Cabinet had made its final decisions on the suggestions outlined in the April 2012 issues paper Recognising salary trade-offs as income.

“We have listened to public submissions and the proposed new rules are now narrower than originally suggested, focusing predominantly on employer-provided car parks,” Mr Dunne said.

Specifically, Cabinet agreed on –

* A wider set of car parks provided to employees are to be taxed, through the FBT (Fringe Benefit Tax) rules. The new FBT rules will focus predominantly on car parks provided to employees in the Auckland and Wellington CBDs (the areas where the benefits to the employee are greatest). There will be certain exclusions, for example, for car parks used by work vehicles, for late night shifts and disabled car parks. To reduce compliance costs, standard values will apply when the car park is not provided through a commercial car park operator.

* Explicit salary trade-offs involving vehicles and car parks, as well as vouchers, such as grocery or petrol vouchers will be included in the definition of income used when calculating social assistance entitlements and obligations.

The new FBT rules will replace the current on-premises/off-premises distinction for determining whether a car park is subject to FBT.

And why was this being done?

“The changes are about ensuring that tax is applied fairly, but without imposing undue compliance costs,” Mr Dunne said.

“Consequently, the current FBT treatment for charitable organisations will be retained. For example, the car park FBT changes will not apply to charitable organisations except where FBT currently applies, such as for employees of businesses run by charitable organisations,” he said.

The changes would be included in a tax bill scheduled for introduction in November month and would apply from 1 April 2014.

Oops.

Don’t think so.

Look (here) what’s come out of the Beehive today –

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.

“The proposal was made as a matter of fairness, because in general we consider that cash and non-cash benefits should be taxed the same way,” Mr English says.

“While we do not resile from that general principle of fairness, we do need to be pragmatic. This was considered likely to be one of those proposals from IRD where the cost of compliance, compared with the likely return, made it not worth pursuing.”

“Pragmatic” means they recognise they would have lost votes on this one.

But how do we explain this U-turn?

For starters, we get Dunne to do the explaining.

Mr Dunne says officials’ estimates of the number of carparks which would have been affected were far fewer than the 180,000 that was being talked about publicly.

“Even so, for expected revenue of about $17 million, and the difficulties around ensuring the policy would not have adversely impacted other workers, it seems sensible not to proceed,” Mr Dunne says.

“We will continue to focus on fairness in the tax system but we also think that there are bigger and more important tax matters for officials to focus on.”

As we all know, this issue has had the remarkable effect of putting bosses and unions on the same side of raucous opposition to the tax.

The media statement puts it a bit differently –

Ministers said that the issue was under consideration at select committee and had attracted considerable comment.

On balance, Cabinet has decided not to continue with it.

As Alf observed earlier, it’s Dunne that has been spattered most.

That’s because the proposal to extend a fringe benefit tax of almost 50 per cent to employer-provided onsite parking was his brainchild, at least for purposes of public consumption and rejection.

And so (as Alf has been aware for several days) National Party officials at the very highest levels were shifting the heat to Dunne while he was overseas.

One report (here) put it this way –

“Points are being made that this was not a National Party initiative,” said a source close to the FBT Action Group, a coalition of interested parties fighting against the new tax.

The source said the group had received “positive communications” from officials, who had also expressed real concern over the increased cost of compliance for businesses.

And –

The National Party was aware that the FBT issue could become the equivalent of Labour’s infamous attempt to regulate shower-head flows and lightbulb types, the source said.

And so lots of back-peddling went on, and then a U-turn was neatly executed, and you could say it’s all Dunne and dusted.

Yeah, there’s always the chance he will throw his toys out of the cot and withdraw his support from the Government.

But Alf will wager he won’t.

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