Carr rejects scrappage talk

FEDERAL industry minister Kim Carr does not believe that Australia needs a “cash for clunkers” scrappage scheme similar to those operating in a number of European countries to stimulate new car sales.

“The difficulty is that it’s extremely expensive and there are finite resources for the government,” Mr Carr told GoAuto this week.

His department has estimated the cost of a scrappage scheme at about $1 billion, depending on the age cut-off and amount offered.

Despite calls from the Motor Traders Association of NSW for the government to offer $3000 for inefficient old ‘bombs’ to be scrapped in favour of modern new cars, Mr Carr believes that a new government tax break for business buyers is a more effective incentive.

Mr Carr said the $3.8 billion Capital Investment Allowance announced on February 3 provides businesses a 30 per cent deduction on purchasing assets, including cars, on top of the usual tax deduction for depreciation. The scheme applies to purchases in the six months to June 30 and then reduces to 10 per cent for the following six months to the end of 2009.

“It provides a benefit for a tradesman buying a $30,000 utility with a tax deduction of $9000 on that vehicle,” he said. “That’s an after-tax return for this financial year of $2700, or nine per cent of the purchase price.

“That’s a major contribution to lifting the level of demand quickly and is the sort of measure that’s probably money better spent in the short-term.

“I think that will be more effective than scrappage in the short-term. This is an immediate stimulus to demand.” Mr Carr admitted, however, that the government needed to work harder to let people know the tax concession existed.

The minister’s stance echoes that of the Federal Chamber of Automotive Industries (FCAI), which told GoAuto earlier this month it was investigating scrappage because of its apparent success in Germany and France in particular, but believed the government’s capital investment tax break should first be given a chance to work.

A local car company insider also told us that a scrappage scheme would not be as successful in Australia because used-car prices here were higher than in Europe – so the incentive would have to be even higher than Germany’s figure of €2500 ($A5000).

He said that, with even a 12-year-old Hyundai Excel commanding as much as $5000 as a used car, the scrappage incentive would need to exceed that rather than the MTA’s proposed $3000.

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