sign uplog in
Want to go ad-free? Find out how, here.

Terry Baucher looks at some of the taxation ramifications from the Climate Change Commission's draft report

Terry Baucher looks at some of the taxation ramifications from the Climate Change Commission's draft report
Terry Baucher says as an interim measure to encourage greater take up of EVs the Government could consider exempting EVs from FBT until the new emission-based FBT rules are in place. 

By Terry Baucher*

The Climate Change Commission released its draft advice for consultation on 31st January. What of note did it have to say about the role of taxation? 

The Commission’s Necessary Action 3 recommended accelerating light electric vehicle (EV) uptake.  As part of this it suggested the Government:

Evaluate how to use the tax system to incentivise EV uptake and discourage the purchase and continued operation of ICE [internal combustion engine] vehicles.

As the Commission is no doubt aware taxes can have significant behavioural changes very quickly as the following example of the changes in the United Kingdom’s Landfill Tax illustrates. 

Between its introduction in 1996 and 2016 the rate of Landfill Tax was increased from just under £10 a tonne in 1996 to nearly £90 a tonne by 2016. Over that 20-year period the annual amount of waste landfill fell from 50 million tonnes to 10 million tonnes.

So what tax changes could be used to incentivise change?

The available evidence indicates that the present fringe benefit tax (FBT) rules are unintentionally environmentally harmful. An NZ Transport Agency report in 2012 examining the impact of company cars found they were heavier with higher engine ratings than cars registered privately. The availability of employer-provided parking encouraged longer commutes from more dispersed, automobile-dependent locations than would otherwise occur.  Under present rules employer-provided parking is largely exempt from FBT.

The trend for larger, heavier vehicles has accelerated since 2012 with a greater preference for vehicles such as SUVs and utes. Last year 77% of all new passenger vehicle registrations were SUVs and utes.

A by-product of the trend for purchasing of twin-cab utes appears to be widespread non-compliance with the existing FBT rules. This is in part because of an incorrect perception that such vehicles automatically qualify for the “work-related vehicle” exemption from FBT. The combination of greater numbers of such vehicles and apparent under-enforcement of the FBT regime[1] exacerbates the trend for indirectly environmentally harmful practices identified by the NZTA in 2012.

Inland Revenue should therefore immediately increase its enforcement of the FBT rules relating to twin-cab utes. These changes should be allied with the adoption of the approach in Ireland and the United Kingdom where FBT is greater on higher emission vehicles. I consider these emission-based FBT rules can be adopted relatively quickly, and it ought to be possible to have these in place by 31st March 2023.

As an interim measure to encourage greater take up of EVs the Government could consider exempting EVs from FBT until the new emission-based FBT rules are in place.  In Ireland, EVs with an original market value below €50,000 are presently exempt from FBT. The threshold here could be $50,000.

Additional FBT related measures include increasing the application of FBT on the provision of carparks to employees and not taxing the provision of public transport to employees. This reverses the present treatment and fits better with a policy of decarbonisation without impacting an employer’s ability to provide such benefits. 

Taxing the provision of employer-provided carparks could raise significant funds. The 2012 NZTA report estimated the annual value of free parking in Auckland to be $2,725. With at least 24,000 employer owned car parks in the city this amounted to a tax-free benefit of $65 million per annum. FBT is generally charged at 49% of the value of the benefit so the potential FBT payable could be between $75 and $100 million per annum. 

The suggested FBT changes should change behaviour, but as the Commission also pointed out we need to reduce emissions. We have one of the oldest vehicle fleets in the OECD and it is also getting older. The average age of light vehicles in Aotearoa New Zealand increased from 11.8 years to 14.4 years between 2000 and 2017.[2] Compounding this issue, the turnover of the vehicle fleet is slow, on average vehicles are scrapped after 19 years (compared with about 14 years in the United Kingdom). 

Furthermore, we are one of only three countries in the OECD without fuel efficiency standards. As a result the light vehicles entering Aotearoa New Zealand are more emissions-intensive than in most other developed countries. For example, across the top-selling 17 new light vehicle models, the most efficient variants available here have, on average, 21% higher emissions than their comparable variants in the United Kingdom. They are also less fuel efficient, burning more fuel and therefore generating higher emissions. The Ministry of Transport estimated if cars entering Aotearoa New Zealand were as fuel efficient as those entering the European Union, drivers would pay on average $794 less per year at the pump.

The Commission is concerned about the impact of its proposals on low-income families, who could be asked to bear a disproportionate part of the costs of change. For this reason, I suggest the funds raised from the FBT changes should be first applied to a vehicle exchange programme. This would remove older higher-emitting vehicles (say ten or more years old) by subsidising purchase of newer vehicles (maybe from car rental companies with excess stock). 

If it seems counter-intuitive to subsidise “old carbon” technologies there are three short-term benefits to consider: newer cars generally have lower emissions, are more fuel efficient and are safer, indirectly helping reduce the road toll. This scheme also supports the most vulnerable families who cannot rely on public transport and are most likely have older, less fuel-efficient vehicles. Furthermore, funds involved would go further than if applied in directly subsidising the purchase of electric vehicles. 

I also suggest the buy-back scheme is targeted at lower-income families and should therefore be means-tested.  A starting threshold might be the Working for Families tax credits threshold of $42,700 above which abatement applies. This threshold could be increased if the vehicle is more than, say, 15 years old with accelerated rates applying if the car is more than 19 years old (i.e. older than the life expectancy of the average car in Aotearoa New Zealand).

The Commission has opened the debate on our transition to a greener, low-emissions economy. Tax will have a major role in that as Pascal Saint-Amans, the Director of the OECD’s Centre for Tax Policy and Administration acknowledged last year when he suggested that when responding to the impact of Covid-19.

Governments should seize the opportunity to build a greener, more inclusive and more resilient economy. Rather than simply returning to business as usual, the goal should be to “build back better” and address some of the structural weaknesses that the crisis has laid bare.

A central priority should be to accelerate environmental tax reform. Today, taxes on polluting fuels are nowhere near the levels needed to encourage a shift towards clean energy. Seventy percent of energy-related CO2 emissions from advanced and emerging economies are entirely untaxed and some of the most polluting fuels remain among the least taxed (OECD, 2019). Adjusting taxes, along with state subsidies and investment, will be unavoidable to curb carbon emissions. 

The 2019 Tax Working Group (the TWG) chaired by Sir Michael Cullen undertook a review of environmental taxation and made several significant recommendations in its final report.

Unfortunately, the backlash against the TWG’s proposed capital gains tax meant that its commentary and proposals on environmental taxation were overlooked. 

Nevertheless, the TWG’s groundwork in this area now needs to be built on. It’s therefore interesting to note that in its briefing to the new Minister of Revenue David Parker Inland Revenue noted one of its top tax policy priorities was “the role of environmental taxes and what an environmental tax framework should look like.”

Given that David Parker is also the Minister for the Environment I suggest Inland Revenue might be accelerating its work in this field, if the goals suggested by the Climate Change Commission are to be met. Watch this space.

[1] FBT is tied to employment. Over the 10 years to 30th June 2020 the amount of PAYE collected by Inland Revenue rose by almost 66% from $20.5 billion to $34 billion. However, over the same period the amount of FBT paid rose 28% from $462 million to $593 million. This gap suggests some level of under-reporting and enforcement.

[2] By comparison in the United States in 2016 it was 11.6 years for cars and light trucks and 10.1 years for all vehicles in Australia for the same year and 7.4 years for passenger cars in Europe in 2014 (Ministry of Transport data)

*Terry Baucher is an Auckland-based tax specialist and head of Baucher Consulting. 

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.



100% agree on the FBT and twin cab utes. The vehicles have their place, for sure, but this is just subsidising them via a loophole.

IRD should take a trip to boat ramps in the holidays and take some plate numbers. Plenty of utes, big trailers and nice boats.

This used to be a thing the IRD did. Less fruitful these days given the FBT exemptions you can nominate vehicles for if you're a small company and you only have one or two vehicles - I suspect many would qualify but whether they had the correct paperwork would be a different story.


Current FBT rates will probably get a poke in light of the Government increasing the top tax bracket - so that means premium-priced EVs are about to become even more expensive. Why would you bother? In reality, zeroing FBT on EVs or removing GST on private imports of EVs are easy steps we could take now if we were serious.

Nothing this government has done so far has indicated that they're serious.

Excellent suggestions. Agree with all and so pleased to see someone thinking on policy initiatives that address matters of inequality at the same time as improving our carbon footprint. We simply cannot accept that the already disadvantaged bear the brunt of the climate mitigation policies.

Would love to see Terry address the idea of using taxation as a mechanism for payment for ecosystem services to the agricultural community as well in this context. In particular, wetlands restoration;

Er Massively increasing the cost and dropping the ONLY form of accessible transport for the most vulnerable is exactly punishing the most vulnerable and poor (esp considering most working age disabled & poor live on less than $360 a week which does not make rent). NEWSFLASH WE CANNOT GET IN OR BUY EVS EVEN JUST FOR SHOW. Try this how about not punishing the poor and not stripping their ONLY form of transport to hospitals, services and their community. How about this maybe instead of spending all that money going into subsidizing the richest people to buy EVs you could instead offer the most vulnerable jobs or the living wage (or even cancel the law that makes it legal to pay them less than $3 an hour). Just a thought that while people are literally getting food prep and bathing cut funding rich office managers enough to buy another rental and a EV might be a bit out of touch and evil. Geez even tradies cannot get EVs for work in NZ.

I hope there is a way for the incumbents to legislate such changes within this term and make it hard for future governments to repeal.

I don't expect the Labour party to hold majority in the Parliament for very long, and team Collins would let the country burn instead of making utes and staff parking more expensive to businesses.

The best way to make legislation hard to repeal is to make sure a decent chunk of the population actually want it. As an addendum, the idea that we'd override basic constitutional arrangements for climate change legislation but not in response to a housing and accommodation crisis is unfathomable.

While I agree we need action on housing too, I don't agree with your priorities. The ability for all future generations to live a decent and sustainable life rank higher for me than the unfortunate needs of those currently with imperfect housing situations. The moral equivalence is not even close as far as I can see.

"The moral equivalence is not even close as far as I can see." So in other words, "Let Them Eat Houses?"

Nope. Simply weighing the needs of a tens->hundreds of thousands of people now, versus those of tens->hundreds of billions of people in the future.

Your lifestyle may accord you the ability to dismiss actual wide-scale suffering and demographic changes being driven from poor quality and expensive housing in the here and now in the pursuit of longer-term, more abstract ideals, but to me that is frankly inhumane and callous. Ideally, we would be able to do both, but given we are in the situation we are in we clearly cannot. So if we are going to break constitutional conventions, I'd rather do it for the thing that will have tangible benefits for people living in misery as we speak. It's no good floating lofty ideals about 'leaving a better world for our grandkids' if they've all died from asthma or rheumatic fever.

I still don't agree. Obviously present day suffering is more available and obvious, but no less real than the future suffering which will occur if we fail to act on climate change. Current predictions are for ~200 million climate change-related refugees in the next 30 years - how do you balance that against the suffering of our population with inadequate housing at the moment? And that's just in 30 years - damaging the planet and frittering away our resources now could contribute to the suffering of billions in the future, and countless billions of potential lives if we destroy our civilisation. These don't seem like lofty ideas to me - yours seem like narrow issues, although as I said they are important and we should be acting to solve both at the same time. Neither can afford to wait.

My issues are narrow, because they're pressing and we're living with the consequences and actually killing people and children now. I guess I'm making some sort of conscious choice to not overlook actual suffering we can easily fix in the here and now as opposed to Greenpeace pamphlet sloganeering about stuff that's going to happen years from now - not to say it isn't important, sure, but I don't look the other way when I see animals in pain because I donate to the SPCA every now and then.

Look up CS Lewis- the Problem of Pain - do we give everyone in the world an aspirin, reducing the amount of overall pain, or do we treat those most in pain. The net amount of pain is the same, the effects hugely different. I'm with GV on this one.

I don't see the relevance. The argument is about whether present suffering is more important than future suffering - and I would argue as the future suffering affects many more people, it is the priority.

We simply seem to have different discount rates for future suffering. This is very common - as a species we tend not to think particularly far into the future. If we did we'd make very different decisions.

There's always a statistical chance that future generations may not ever exist (asteroid, nuclear war, er global pandemic...).

That's true. I guess that impacts on the discount rate for future suffering. My main point is we shouldn't simply ignore problems that affect future generations while concentrating on todays issues - we absolutely need to do both at the same time.

To be fair I vote with staying alive and not killing disabled folk on your whim so you can get a free ride when you are paid far above the poor and most vulnerable sectors but then that must be the Jewish heritage in me.


Potentially a lot of new taxes could be avoided if existing rules were enforced...... It would be interesting to know if FBT was being paid on all the branded vehicles at the boat ramp.

> It would be interesting to know if FBT was being paid on all the branded vehicles at the boat ramp.

I'll give you a hint: it's not.

And with the top FBT rate skyrocketing to 63.9% from 1 April, there would be a bigger govt revenue benefit to IRD enforcement.


Snap. Pauanui looked like a Ford Ranger dealership in the holidays.

There is much more that can be done. A stuff article today indicates transport emission levels have increased 63% from 1990 levels. Although it is not stated what portion comes from trucks, the observable number of trucks on the road suggests that they contribute disproportionately. The Government can elect to stop subsidising trucking companies, getting more freight onto rail.

The trucking subsidies stem from spreading the cost of road maintenance charges across all users, despite the Government knowing and admitting that 80%+ of all road damage is caused by large trucks, and since this was admitted, the government has moved to allow bigger and heavier trucks on our roads. Down Whangavegas way the number of trucks on the road is huge. I'm sure that is the same all over.

63% is about what you'd expect from the population growth and increases in tourism over that period. As well as the emissions from extra vehicles, there's also the fuel inefficiency of cars crawling along the motorway for hours each day instead of travelling at a much more fuel efficient 80 or 90 km/hr.

And therein lies a very salient point. Our runaway population is one of our biggest environmental and economic problems. All just to keep the property ponzie scheme ticking along.

It's easy to check these figures from the MfE interactive tool. Since 1990 population is up 45%, land transport up 101%. Heavy vehicles (>3.5t) weren't separated out until 2001, their emissions are up 55% since 2001.

The eternal 'boost Rail' mantra runs into a lot of awkward spatial facts in Godzone.
No rail ever to:

  • West coast SI south of Hokitika, north of Ngakawau
  • West Coast of NI between Helensville and Waitara
  • The entire East Cape region between Gizzy and Opotiki
  • Most inland regions of Marlborough, Tasman, Mackenzie, Queenstown

Rail used to exist but is now gone in:

  • All inland parts of the SI except the Christchurch-Stillwater line
  • Northland north of Whangarei
  • Wairoa-Gisborne
  • Stratford-Ohakune

So 'getting freight onto rail' runs into a lot of Capex, if the objective is to run a spur line to within X km of all population centres having more than Y residents. Which objective, of course, was the original Vogel scheme, a century-and-a-half ago. Most of the discontinued lines never made Cent One over their entire life, and this was at a time when road transport alternatives were traction engines or horses.

It's just a dream (disclosure - I luv choo-choos).....

All fair points Waymad, and we don't have to run rail to every small town. But running it to major centres including regional cities would deliver a good option, and in doing that the rail would pass close enough to many small towns anyway. And modern electric locos would pull good loads, and with a renewable electricity supply the GHG impact would be worthwhile.

Having said that, we have been short changed by our Governments and transport authorities who have crippled this country with two lane highways and different speed limits for different types of traffic, followed by decades of not just neglect, but a political myopia to the future, by refusing to upgrade our major roads to multi-lane freeways. Greenies object to decent roads and highway construction without realising that we cannot have a future without travel, and ecologically compatible travel requires good quality infrastructure to ensure travel can be efficient.

So, a very limited proposal - regional cities like Gisborne, Queenstown are still excluded.

And 'electrification' has very substantial capex quite apart from the power supply points (multiple), the poles, catenaries etc. Getting an overhead line through tunnels and over bridges - most designed in the Vogel era with close to zero scope for more headroom - involves lowering tunnel floors, replacing bridges, and the like, to accommodate the catenaries and the expected freight substituted from road.

The poster child here is the proposal for Northport - where to accommodate the expected container sizes (high-cube 40-footers are 9'6" high in the old currency) - every tunnel has to be re-worked. Multiply that capex out, apply it to the current (sorry) NZ rail network, and that gives some idea of the up-front cost to even start to deliver on the 'Freight by Rail Everywhere (as long as ya lives in a Regional City....)' notion.

So you are saying we shouldn't build any today to prepare for tomorrow? One of the things about Capex, it is never cheaper than to build it now, or better - yesterday. And what ever the Capex is, it isn't needed up front but can be spent over a period of time. Good project planning could result in parts of the network being in use before other parts are finished or even started, so can start delivering returns, or depending how they are funded or the returns are generated, even funding further parts of the network itself.

Yes things change, so the designers need to plan for that. It is really easy to be negative and say too expensive, but if we don't start we will never get there. A myopic attitude that many have had and used as an excuse for doing nothing. Lumbering future generations with a failing economy because their fathers didn't have the smarts, wisdom or balls to look forward and make a decision to actually do something that built for a future need.

It's not 'Build', Murray86 - it's 'Convert', and during that conversion, remove the rail transport link entirely. Poster child here is the Waiau-Kaikoura earthquake sequence, which removed the single-track main rail link from service for the thick end of two years. Tunnels and bridges on single-track are Service Removal Devices if they have to be touched at all. And touched they would all certainly need to be, if Electrification is to be a goer. Consider, too, that very little of the Main Trunk is double-tracked, and there are little to no alternate routes with built lines. So there is no alternative line or route available in most cases: removing the single track from service is the only possibility.

And for an added frisson, until every single bridge, tunnel and other electrification bottleneck is dealt to, none of the line can be used end-to-end by the Lectric Lokeys, even if short intervals of service can be arranged. All this is Project Planning 101, which seems to have escaped many of the spruikers of the concept.....

Murray, I live in a rural area adjoining SH1, so I get to observe a lot of trucks going by. Having had more than a passing interest in rural transport in bygone days, I can with reasonable accuracy tell the nature of the cargo many of them are carrying. I can confidently state that to attempt to shift onto rail probably more than half of those cargoes would be impossible. We tried that years ago with the 40 mile limitation and it simply didn't work. Many commodities do not lend themselves to rail freight, or their pick up or set down points are not serviced by rail, and double handling from truck to rail and back again markedly increases time and cost.

“double handling from truck to rail and back again markedly increases time and cost”
Not so sure about that, there are reports on the Internet that road rail combinations can be profitable, even on NZ scale short haul.
I saw a US report that limiting driver hours changed the economics and then there are the emissions savings, not that we care about that.
I also noted a Kiwirail statement that 84 trucking companies have signed up to use the container shipping from Southdown, why would companies do that if it was cheaper and more convenient and profitable to drive a truck down the road.


Just one bit of confusion that keeps appearing. EVs aren't zero emissions. A typical medium sized petrol powered family car will create around 24 tonnes of CO2 during its life cycle, while an electric vehicle (EV) will produce around 18 tonnes over its life cycle. A motorcycle or scooter is actually much lower than either but the government hates them.

You can see the worst environmental outcome would be people scrapping perfectly serviceable vehicles early.

Squishy. Do those figures include making the car and running costs? Was discussing that yesterday. Do you have a reference? Ta

Looks to have come from here:

"For example, a typical medium sized family car will create around 24 tonnes of CO2 during its life cycle, while an electric vehicle (EV) will produce around 18 tonnes over its life. For a battery EV, 46% of its total carbon footprint is generated at the factory, before it has travelled a single mile"

As quoted by GregF. I tried to locate figures for New Zealand but, as far as I can work out, the lifecycle emissions have never been worked out. That was surprising to me given one of the recommendations Rod made switching to EVs, maybe look at the robustness of resesrch that went into that climate change paper.

There is a report by EECA giving the lifecycle emissions for EVs. For a small car they are about 60-70% lower, but the thing is they will continue to get lower with time as the grid is cleaned up.
Small petrol car: 6 tonnes to make, .22kg/km*12000km/yr*12 years = 32 tonnes, total 42 tonnes. (Extracting, refining, and transporting the fuel having added 25% to the tailpipe emissions)
Small EV: 7 tonnes to make, .02kg/km*12000*12 years = 3 tonnes, total 10 tonnes.
There are a lot of different lifecycle calculations out there (the one at MIT is good), the main variation is the different efficiency of different battery factories.

Also, in companies where employees get to use work vehicles privately, such as sales reps, for which the company pays FBT. There is an incentive to drive these, more than they would there own car, to get the maximum value. This is not great from a greenhouse emissions context and should be discouraged by excluding vehicles from the FBT regime and making the equivalent paid in cash instead.

"In Ireland, EVs with an original market value below €50,000 are presently exempt from FBT. The threshold here could be $50,000"

Why suggest a much lower threshold for NZ? EVs are likely to cost more here than in Ireland.

FBT needs to be gone. It is a tax paid by the company, not the employee. Thus the wages remain under reported for WFF and other gifts form the tax payer.

Factor the value of the benefit into the salary and have the individual pay tax on it. You might just find he/she will then forego the Ford ranger and go for the Suzuki swift

It's a good point.

That is an interesting viewpoint that I had not considered previously...... I think Working for Families and accommodation supplements are wage suppressing policies with all sorts of unintended consequences, but will be near on impossible to phase out.

Wouldn't the simplest way be to just bump up the fuel taxes and road user charges?

With immediate impacts on FMCG, and FMCG consumers (the poor are, as always, most affected), housing, PT, in fact everything that needs Freight or Pax transported, and that means - well, practically everything except Netflix.

So you use the income from the increased tax to benefit the poor, and they get to choose wether to use it on a more efficent car , or other needs.

So another re-distributive system in which people end up as negative contributors? How's that working out for us at the moment?

I personally don't think we should do it , I was just responding to the above post, which seemed to be suggesting not raising road tax because it would effect the poor.

Ah. I would feel more comfortable with this if our officials had shown any ability to improve public transport or develop options other than driving in our most poverty-stricken and lower-income areas (e.g. South & West Auckland). Until that is the case, then I wouldn't go lumping them with extra costs for not using something that doesn't exist and no one seems in a terrible rush to provide.

Does mean the end of the mass immigration policy. We are swimming against the tide if we keep increasing the population at such a frentic pace. Migrants want to drive drive cars, heat houses etc. Maybe we should go to a one out - one in policy.

You mean migrants want to behave like NZERS? I have no proof , but I would say migrants are more likely to use public transport than NZERs. So do we ship out one of the worst polluting kiwis to compensate for a efficient migrant?
Blatant xenophobia really.

That is right. Anyone who questions the wisdom of mass immigration (and its detrimental impact on housing, schools, hospitals etc) is xenophobic. But you make one good point. Many of the immigrants are lucky to own a bicycle in their own country want a petrol driven car (similar to most kiwis) when they get here. Overall bad for the planet.

Good article Terry, hope you submit to the CCC along these lines!

Some occupations need utes.I have a double cab 4wd. The whole back seat area is full of tools , raincoats etc that I never know when I might need. The 4wd capacity is essential for going off road. These specifications were only available in a diesel powered configuration. The NZ market is so small by world standards that it will be unlikely that any manufacturer will develop an electric powered version of the above.