Andrew Couch: FBT tax exemption for public transport and the shared mobility culture

Minister for the Environment David Parker. Photo / Mark Mitchell

OPINION:

The recent Taxation Bill has attracted attention owing to the proposed levy of GST on Kiwisaver and the negative effects on savers and the funds management industry.

However, the multiple reforms proposed in the bill also include a ray of light for public transport and the ability of NZ corporates to start facilitating reductions in their carbon commuting profile.

David Parker is proposing the smart move of creating an exemption from Fringe Benefit Tax (FBT) for public transport. This is a follow-through from the 2019 Tax Working Group which made this recommendation. The existing, outdated FBT rules made the subsidisation of commuting services unworkable for most companies as full FBT was chargeable. The marginal tax rates worked out at up to nearly 64 per cent for a higher rate taxpayer - enough to put off most companies aside from large corporates that are perhaps having to consider their carparking capacity in the light of their carbon profile.

But the new bill proposes to allow commuting by public transport buses to be exempt from FBT - opening the door for companies to consider subsidisation of public transport as a workable long-term option. The rules also favour bus passes as opposed to one-off reimbursement of travel (that is classified differently), providing an incentive for regular employee trips - the most significant of which is their weekly commuting.

Furthermore, large employers are focused in this area as there is going to be an increasing need to consider and report their commuting emission profile from 2023 onwards. New Zealand is an early adopter of the Task Force for Climate-related Disclosures (TFCD) directives. Starting next year, large NZ companies will need to report their greenhouse gas emissions including consideration of the Scope 3 emissions (of which employee commuting is one of the largest contributors). This sea change will cause employers for the first time to have some responsibility for commuting. Thus, the timing of the FBT reforms is very good as it helps facilitate something the corporate sector know they are going to have to deal with.

Commuting is a large contributor to overall transport emission profiles (around a third) and getting people onto public transport and shared mobility is an efficient way to reduce carbon emissions. When considering the whole of life cycle carbon profile, this offers greater scope to permanently lower emissions than transitioning to electric vehicles. The opportunity to make a dent in carbon emissions is possible if private car commuters can be converted to shared mobility - for example, 45 per cent of Aucklanders currently commute via private car travel - and they drive mostly alone. Convert them to shared mobility and you have a real mechanism for change. A swing of just 10 per cent could save 71 tonnes of carbon a day in Auckland or around 18,000 million tonnes a year.

Achieving such a target will only be possible if the reality of public transport in New Zealand is accepted. The levels of service in public transport are not fully there to achieve this goal, despite the valiant attempts by local authorities such as Auckland Transport to make it happen. The often-underrated Auckland Transport has achieved significant growth in public transport in Auckland in the last 10 years through judicious investments in bus and rail. Auckland has achieved long-term growth in public transport compared to long-term declines in most developed countries in favour of private travel. However, we are never going to be able to justify investment in public transport from our current base to get full coverage. This is a matter of fact and obvious in a low population country like New Zealand.

Employers should be encouraged to run their own bus or carpooling services for commuting in the private sector, to provide solutions in a tax-friendly fashion. Photo / 123rf

To achieve large swings in commuting trends, we are going to need all hands to the pump. This will include public transport options facilitated by innovation in the private sector. The bill currently excludes FBT exemption by on-demand ridesharing options such as taxis and platform solutions such as Uber and Ola. That is understandable given they facilitate largely single passenger travel. But the new bill is silent on carpooling and ridepooling, currently being considered and trialled (at great expense) by several local authorities around New Zealand.

All forms of shared mobility for three riders or more should be exempt from FBT for commuting to give us the best shot at making the change. If you have three riders via carpool or ridepool then a net carbon saving is made (assuming at least one of them is converted from private car travel). This allows employers to consider running their own bus or carpooling services for commuting and the private sector to innovate to provide solutions in a tax-friendly fashion.

Encouraging a carbon-friendly commuting culture in New Zealand companies has multiple benefits aside from emission savings. Commuting by car is known to be very stressful and we all know the effects of a bad day at the office and then getting caught in Auckland or Wellington traffic. Over time, conversion to a shared mobility culture across the country can also start to make in-roads into reducing congestion and address one of the pain points in our otherwise fantastic New Zealand lifestyle.

Tidying up the current proposed Taxation Bill in favour of all shared mobility modes will make transport emissions savings achievable.

- Dr Andrew Couch, co-founder and managing director of ridepool company Kara.