The surge in popularity of larger vehicles in Australia has been driven by tax perks that incentivise buying SUVs, utes and other 4WDs instead of less-polluting smaller-sized cars and sedans, transport experts argue.
SUVs accounted for more than 50% of new vehicles sold in Australia last year, a share which has almost doubled over the past decade. The uptick has prompted calls to tackle the trend by limiting tax incentives, building bus lane-style narrow lanes and more parking spots exclusively for small cars.
The transport and cities director at the Grattan Institute, Marion Terrill, said tax rules for businesses and employees were subsidising the costs of buying a car and many saw this as an opportunity to upgrade.
“When you subsidise the purchase, people probably take some of that benefit as a cash saving, but we also see people who see it as a way to get a more expensive vehicle and, often, more expensive means larger.”
Terrill points to two tax incentives that she believes are behind the surge in sales of larger vehicles: the instant asset write-off for businesses, and the car concession in the fringe benefits tax.
For businesses, including tradies and sole traders, the instant asset write-off scheme allows for the cost of a vehicle to be deducted from a business’s taxable income in the current financial year, as opposed to having to depreciate it over several years.
For vehicles that can carry less than one tonne or seat less than nine people, the instant asset write-off limit is smaller – capped at $64,741 in the 2022-23 financial year.
However, a $150,000 threshold applies for vehicles that can carry more than one tonne or seat nine or more people, regardless of whether such a high payload carrying capacity is required by the business.
Terrill also identifies fringe benefits tax – designed to tax nonmonetary forms of income – and the rise of salary sacrificing programs for employees that tax cars at a concessional rate.
She said by making cars cheaper through such programs, Australians could buy more expensive cars with their salaries and were jumping at the chance to upgrade.
Additionally, heavy vehicles such as utes, vans and 4WDs, which can carry more than one tonne, are exempt from fringe benefits tax.
Terrill also noted that electric vehicles are exempt from fringe benefits tax, which came into effect last July. While acknowledging electric vehicles should be encouraged from an emissions reduction perspective, Terrill pointed out the vehicles still contribute to accidents and congestion, and believes there is no shortage of demand.
She has called on the Albanese government to introduce an emissions ceiling for vehicles instead.
More broadly, Terrill said the government should remove tax rules that incentivise purchasing larger cars over smaller cars.
“Big cars have all sorts of negative implications for the community,” she said. “They need more fuel to power them, so there’s more emissions and more exhaust pipe pollution which is toxic. They’re also more congesting and take up more space on roads.”
Greater SUV uptake reduced road safety for other users, she said. “People will say they feel safe when riding up in one, that they can see more, but everyone else in a small vehicle is less safe. And it’s much less safe for pedestrians when there are a lot of large SUVs.”
Terrill said Australia’s road design had made upgrading to SUVs easy. Australia’s standard parking spots were based on allowing a 1979 Ford Falcon to comfortably park – a model which Terrill described as a roomy car. This had allowed larger vehicles to park with ease.
“We’ve got wide roads and large parking spots compared to many countries – we’re much more like the United States than we are Japan.
“It would be quite easy for governments to tweak the incentives, not only to stop giving tax advantages that make buying bigger vehicles cheaper, but also to send lots of little signals that if you want to run a great big vehicle it won’t be convenient in densely populated areas.”
Terrill said creating more small car-only parking spots was “a great idea”, but also believed introducing “much narrower lanes when building new roads” would send a signal that would encourage uptake of smaller cars, much like carpool and bus lanes.
“It’s important we nudge people the other direction away from larger vehicles.”
