Earlier this week, the government announced final details of its proposed 'feebate' scheme to incentivise a shift to electric vehicles. As the New Zealand Herald reported earlier this week:
Drivers who buy new cars from July 1 will be able to get taxpayer-funded rebates of almost $8700 for a new electric or plug-in hybrid car, and about $3,500 for used cars.
But those who buy petrol vehicles will cop the cost under the Government's plan announced today – from January 2022, buyers of new petrol cars will have to pay a fee of up to $5875 while those buying newly imported used cars face fees of up to $2875.
That fee would be based on emissions – for example, it would add $2,900 to the cost of a new Toyota Hilux, $1230 to a Kia Sportage, and $830 for a Nissan Navara.
Incentivising a shift to electric vehicles in this way makes little sense in the presence of a binding emissions trading scheme cap. Those issues have been well explained elsewhere (see Thomas Lumley's post at StatsChat, or Eric Crampton's post at Offsetting Behaviour, for example). Instead, let's consider a potential problem that the government has so far thankfully avoided.
Farmers and contractors are up in arms about the feebate scheme, because their work vehicles will suddenly be much more expensive. As RNZ reported yesterday:
Farmers and tradies say the government's clean car package is an unfair tax on them as no alternatives are available for their work vehicles...
Federated Farmers president Andrew Hoggard suggested allowing an exemption for selected sectors - such as farming and construction - until meaningful alternatives were available in New Zealand.
[Canterbury high country farmer Simon Guild] said that was a system the rural sector could get behind.
"That makes total sense while there is no alternative, and I challenge anyone who thinks that there are alternative vehicles we can use to come to our place and I'll take them around in a high-emitting Hilux or whatever vehicle we have available and then they can tell me if that job can be undertaken by one of the current alternatives on the market."
Dunedin builder Sacha Gray said electric vehicles were similarly not up to scratch at the moment for tradies...
Gray also supported Hoggard's proposal.
I can immediately see two problems with a system that would exempt 'work vehicles' for farmers and tradespeople from the tax on imported petrol and diesel vehicles. The first is a variation on the great Jaffa Cake controversy in the UK (see also my post on a similar topic here). Who counts as a farmer or tradesperson, able to buy an imported petrol or diesel vehicle without paying the import tax? Farmers and tradespeople, you may say. Of course, but where do you draw the line? Do people with lifestyle blocks that are large enough to count as businesses for tax purposes farmers for the purpose of avoiding this tax? How big a block of land would you need to own? Do sharemilkers count? They don't own land. What about farmhands? Then that raises similar questions about tradespeople. Do handymen count? What about landlords who repair their own properties? The feebate scheme may be stupid or unnecessary for ETS-related reasons, but at least it is sensible in avoiding the necessity for a bunch of additional regulations about who is exempt.
The second issue is, once some defined group is exempted from the import tax, what stops them from buying an imported petrol or diesel vehicle, then selling it on the local second-hand market? There's no proposal to tax petrol or diesel vehicles, other than those that are newly imported. So, second-hand cars sold locally do not attract the tax. You would need another set of rules to govern how long a tax-exempt purchaser would have to hold onto their vehicle before reselling it. But it gets worse. What would then stop a farmer (or hobby farmer with a lifestyle block) from buying a bunch of Hiluxes, parking them up in a paddock, waiting out the no-resale period, then selling them, avoiding the tax, and pocketing a nice profit? Again, the feebate scheme may be stupid or unnecessary for ETS-related reasons, but at least it doesn't need to have a bunch of secondary rules to deal with people profiting from their exemptions.
The feebate scheme may be stupid or unnecessary, but at least it is not as stupid as it could get. The last thing we need is a feebate scheme that you could drive an SUV through. Literally.
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