Obama budget proposal will help US car industry

UNITED STATES president Barack Obama has proposed a $US105.6 billion ($A100.2b) package of tax breaks and incentives that will benefit the US automotive industry over the next decade.

The US budget proposal comes at a time when Australian taxpayers are discussing the pros and cons of government assistance for local car manufacturers, following this week’s announcement that Holden will cut 500 jobs from its workforce.

Around 14.5 million cars were sold in the US last year, compared with 1.1 million in Australia, making the American market more than 13 times the size of ours.

But the proposed US tax breaks – largely aimed at general research and development and not just the automotive industry – are almost 50 times larger than the help given by Australian federal and state governments to Holden over the past 12 years.

Almost $US99.4 billion is proposed between 2014 and 2023 to enhance and make permanent an existing research and experimentation (R&E) tax credit that is due to expire at the end of this year.

It is part of an overall $143 billion proposal for research and development, with a heavy focus on cleaner energy, increased energy efficiency and to “ensure US leadership in advanced vehicle manufacturing”.

The R&E tax credit enables companies to claim 20 per cent of research expenses above a base amount.

Extending the scheme is said to make planning investments in research easier, with businesses more likely to start projects that would not have otherwise have been started and completed before the existing credit expires.

Under the proposal a sister scheme, the alternative simplified research credit (ASC), would also be increased from the current maximum of 14 per cent of qualifying research expenses above a certain amount, to 17 per cent from January 1 2014.

A further $US4.2 billion has been proposed over the next decade to support an expansion of existing federal incentives for buyers of plug-in electric vehicles.

At the moment incentives of up to $7500 are offered for buyers of plug-in electric vehicles, but these are proposed to be increased to $10,000.

The incentive would also be broadened beyond EVs to “advanced technology vehicles” that “operate primarily on an alternative to petroleum”.

Conditions of the rebate also include few vehicles being in operation in the US that use the same technology and that the technology enables the vehicle to exceed the government’s target miles per gallon equivalent (MPGe) by at least 25 per cent.

The incentive would apply from January 1 2014 and be reduced incrementally from 2018 before being phased out at the beginning of 2011.

Claims for rebates would be made by the company selling or financing the vehicle rather than the individual buyer, reducing administrative overheads by shifting the claim process from countless customers to a relatively small number of businesses.

More than $US2bn is proposed between 2014 and 2023 for the expansion of an existing tax credit scheme for fuel-cell powered mid- and heavy-weight commercial vehicles.

The proposed credit is for dedicated alternative fuel vehicles weighing more than 6350kg, and would be equal to half the cost of an alternative fuel vehicle over the equivalent fossil-fuelled version.

Up to $US25,000 (up $5000 over the existing scheme) or $US40,000 would be available depending on the vehicle’s weight.

The Australian government is yet to offer incentives for electric vehicles and is phasing out the already reduced subsidies for converting vehicles to run on LPG, while the subsidy for factory LPG vehicles is capped at 25,000 claims per year.

Both schemes are scheduled to be phased out on June 30 2014.