The Coalition Government’s upcoming tax take on fossil-fuelled light vehicles is a double whammy, in that it will penalise both suppliers and buyers of new and used imported models.
There is a part one and a part two. The Clean Car Discount (CCD) is part one and affects the retail market only – car buyers. The Clean Car Standard (CCS) is part two and effects the wholesale market only – the importers.
Part one applies from next month, when buyers of petrol or diesel vehicles that exceed 192grams/kilometre of C02 exhaust pollution will pay CCD tax when they first register the vehicle.
Part two applies from January 1 next year, when importers of new and used vehicles pay a CCS tax on those with a C02 rating that exceeds a new permissible level: 145gr/km.
And that’s when part one and part two join forces. Under the new regime, the importer pays CCS tax on landing the offending vehicle, and the buyer pays CCD tax on registering it. Essentially, the Government is taxing the same set of wheels twice – there’s the double whammy.
CCD is the so-called ‘feebate’ tax, where the penalty on a vehicle that exceeds the Government’s mandated C02 level goes into a fund that serves to subsidise the retail cost of one that doesn’t. It’s aimed at coaxing New Zealanders into ultimately buying ultra-low emission vehicles.
But CCS is a tax take, put in place to strongarm suppliers into importing low emission vehicles only. The more low emission models they bring in, the more tax credits they get to offset the penalties for the higher emitting vehicles in their fleets. Each distributor will have a different target to meet. Ultimately, it has to ensure the average CO2 emissions of its fleet are equal to, or less than, the target Government sets.
Vehicles that exceed the CO2 target can continue to be brought in as long as they are offset by enough zero and low emission vehicles. A distributor that brings in mostly petrol and/or diesel models can expect to pay more CCS tax than one that mixes hybrids or plug-in variants with fossil fuel units.
Senior motoring industry executives say the Government has yet to explain the targets and how CCS will be implemented. The same executives don’t want to say the quiet part out loud, but they estimate CCS tax will collectively cost New Zealand distributors of new models alone more than $250 million in the first year, 2023.
The CEO of one nameplate is looking at an $19 million bill. Another smaller supplier faces an estimated $11 million. “It’s the world’s biggest tax grab,” said one executive. “And we’re left with no option but to pass it on to the car buyer.”
The $19m and $11m tax estimates are based on new vehicles the companies import that exceed the 2023 ceiling of 145gr/km. On paper, most of the petrol and diesel vehicles they now bring in have an average C02 rating of roughly 170gr/km.
Many of those vehicles are only halfway into their model lives. Even updated examples that land here over the next few years from the factory will more than likely continue to emit 170gr/km until next-generation, lower emission replacements appear. Meantime, CCD/CCS will continue to tax the updates as the C02 ceiling counts down to a rock and a hard place of 102gr/km in 2025.
Let’s take two of New Zealand’s top three companies, Mitsubishi and Ford. A rough count says both outfits import 43 different vehicles. Of the 43 Mitsubishis, 17 won’t be taxed. Of the 43 Fords, 9 won’t be taxed. Mitsubishi will therefore receive more C02 tax credits than Ford because it has more lower emission vehicles in its fleet. That’s the theory anyway.
Now to utes, the most popular vehicles in New Zealand. Take the Ford Ranger, the country’s best selling model by a country mile. Ford sold 12,580 Rangers last year, 73 per cent of the 17,286 vehicles it sold overall. The average C02 rating of each of the 16 Ranger variants works out at around 240gr/km, going by Government figures.
That results in an average CCS tax on each one of $3250. Multiply 12,580 by $3250 … and Ford gets a $41 million bill from the Government, softened just a little by the credits it will get for its few hybrid and electric vehicles.
Here’s a fanciful equation, not without foundation: If the 38,500 new utes sold in New Zealand last year were each clobbered with the maximum $5175 emissions tax … the Government would bank $200 million from utes alone.
That won’t happen of course because not all utes – all pretty much running on diesel – will be hit with the maximum tax. So let’s cut the maximum to reflect more of a real-world scenario, where the tax is offset by the tax credits low-polluting stablemates in a brand’s fleet will receive. Say an average tax of $2200 on utes.
Some senior industry figures agree with this $2200 scenario, some don’t, saying it’s too simplistic. Never mind. This isn’t a treatise. Besides, going too deep into the CCD/CCS weeds can bring on nausea. Let’s do the sums: 38,500 times $2200 … is just short of $85 million in tax. Again, that’s just on utes.
There were another 127,500 new vehicles sold in New Zealand in 2021. Around 25,000 were equipped with electrics and wouldn’t incur an exhaust tax. That leaves roughly 100,000 – all with fossil fuel engines.
Some would be hit with the maximum $5175 tax, some would have to pay a percentage of that, say $4660 or $2500, some would pay $1000, some would pay $350 … some that sneaked under the C02 limit would pay nothing at all, and some that were well under it would qualify for a tax credit.
The overall picture is clear: the CCD/CCS regime will ultimately provide Government with a shedload of extra tax. Will it be used to exclusively subsidise New Zealanders into low and zero emission vehicles? That’s the reason Government gave for its introduction. Or will it end up being spent here and there?
Of course, the motoring industry will come up with all sorts of strategies to make CCD/CCS less painful. But underlying all of this is the fact that new and used imported vehicles in New Zealand are simply going to become more expensive … waiting lists will become longer too.