Tax perks driving surge in number of SUVs and larger vehicles on Australian roads

The surge in popularity of larger vehicles in Australia has been driven by tax perks that incentivise buying SUVs, utes and other 4WDs instead of less-polluting smaller-sized cars and sedans, transport experts argue.

SUVs accounted for more than 50% of new vehicles sold in Australia last year, a share which has almost doubled over the past decade. The uptick has prompted calls to tackle the trend by limiting tax incentives, building bus lane-style narrow lanes and more parking spots exclusively for small cars.

The transport and cities director at the Grattan Institute, Marion Terrill, said tax rules for businesses and employees were subsidising the costs of buying a car and many saw this as an opportunity to upgrade.

Terrill points to two tax incentives that she believes are behind the surge in sales of larger vehicles: the instant asset write-off for businesses, and the car concession in the fringe benefits tax.

However, a $150,000 threshold applies for vehicles that can carry more than one tonne or seat nine or more people, regardless of whether such a high payload carrying capacity is required by the business.

She said by making cars cheaper through such programs, Australians could buy more expensive cars with their salaries and were jumping at the chance to upgrade.

Additionally, heavy vehicles such as utes, vans and 4WDs, which can carry more than one tonne, are exempt from fringe benefits tax.

Terrill also noted that electric vehicles are exempt from fringe benefits tax, which came into effect last July. While acknowledging electric vehicles should be encouraged from an emissions reduction perspective, Terrill pointed out the vehicles still contribute to accidents and congestion, and believes there is no shortage of demand.

She has called on the Albanese government to introduce an emissions ceiling for vehicles instead.

More broadly, Terrill said the government should remove tax rules that incentivise purchasing larger cars over smaller cars.