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Company cars: identifying the problems and challenges of a tax system

BSI synopsis

Notes de la rédaction

This is the press release related to the article from Xavier May, Thomas Ermans and Nils Hooftman Reverseau, published on March 25, 2019

Belgium had about 650 000 company cars in 2016 for a total of 5 700 000 cars in circulation. It can be estimated that about 100 000 company cars enter, leave or circulate in the Brussels Region every day.

These findings, combined with the growing consideration of environmental issues, largely explain why company cars have become a recurring theme in media and political rhetoric. They are an ideal target, often accused of generating more traffic and pollution, encouraging the use of heavier and more powerful vehicles, boosting the motorisation rate and causing a loss of tax revenue.

In contrast, those in favour of the system justify their existence due to the high number of kilometres which people who use company cars must travel for work, and argue that they contribute to ensuring that the cars on the roads are more modern and therefore cleaner. Above all, employers consider them as a means of reducing the tax on workers' remuneration which is felt to be too high. And even if the origin and evolution of the system is poorly documented, the success of company cars probably lies in the fact that they constitute a tax arrangement which allows a reduction in the (para) taxation related to the remuneration of workers.

Faced with the multiplicity of arguments and information, it is difficult to see clearly. However, this is what Xavier May (economist at Université libre de Bruxelles), Thomas Ermans (geographer at Université Saint-Louis - Bruxelles) and Nils Hooftman (engineer at Vrije Universiteit Brussel) are trying to do within the framework of the Brussels Studies Institute (BSI) research chair on companies and sustainable mobility. Their synopsis, published in the 133rd issue of Brussels Studies, describes the tax regime for company cars, the specific features of the cars concerned, the characteristics of the companies which provide them and the profile of the workers who benefit from them. They also analyse the distances travelled and their impact on car traffic, as well as estimate the tax and wage impact of the system. Their synopsis concludes with a brief analysis of the environmental impact of company cars.

What can we learn from their synopsis? First of all, the current company car scheme represented a very significant tax loss for 2016, estimated at € 2,3 billion. In any case, it is certain that this loss of revenue for public finances increases each year with the rise in the number of company cars.

The authors also note that the company car system mainly benefits households with the highest income. This is consistent with one of the major objectives of the system, often justified by the high level of taxation on labour in Belgium. While this may be important in order to contribute to recruitment in certain high-level sectors of activity operating in a highly competitive context, it is at the expense of progressive taxation and equity between workers.

The authors also show that company cars generate an increase in car use during home-work commutes, both through modal choice (more car users) and through the distances travelled. And this obviously has an impact on road traffic. If we consider only the employees who work in Brussels, we estimate that 90 000 of them use a company car. Even if not all of these employees would commute by public transport if company cars were no longer provided, these cars nevertheless represent a substantial proportion of car traffic in and around Brussels. The impact on congestion is obviously difficult to estimate precisely, but it is certainly significant, especially since car congestion is not a linear phenomenon: above a threshold, a few additional cars cause heavy traffic jams. Mobility within the Brussels-Capital Region is therefore impacted by a federal tax policy over which the Region has no control, even though road congestion due to car traffic contributes to slowing down the commercial speed of public transport (managed by the regions) and thus its efficiency, as well as its cost.

As regards land use planning, by lowering the costs involved in car use, the company car system encourages the perpetuation of a fragmented land use model in terms of residential and economic functions. This fragmentation of functions is accompanied by long distances, particularly for work-related travel (home-work, professional travel, etc.), as well as by origins and destinations with poor connections to the public transport network, and puts a lasting strain on the possibilities to make use of means of transportation which are alternatives to the car.

Finally, the environmental impact of company cars was considered by the authors from the point of view of air quality. They show that, in the current state, due to a very high proportion of company cars equipped with diesel engines, they are more harmful to human health per kilometre travelled. In terms of greenhouse gases, the question is more complex due to the many hypotheses which exist regarding the life cycle of a car. It is possible that a company car emits on average less greenhouse gases per kilometre travelled than a private car if we consider the life cycle of cars as a whole. Nevertheless, if we take into account the fact that the company car system prompts users to drive more, company cars would ultimately emit more greenhouse gases than private cars.

Furthermore, with regard to recent developments in the system, the authors note that by requiring that any reform of the system does not penalise the worker or the employer with respect to the current system, the parameters of the debate are clearly defined, excluding from the outset any possibility for a fundamental overhaul of the company car system. The political leeway is restricted due to the particular status of the company car in the political rhetoric, where it is considered as the point of reference which must be at the heart of “realistic solutions”.

This synopsis is therefore an uncompromising perspective on the issues and debates related to company cars in Brussels and Belgium. But it is also a salutary review and an essential prerequisite for a reasoned debate on a highly topical issue regarding mobility and society.

References
Xavier May, Thomas Ermans and Nils Hooftman, “Company cars: identifying the problems and challenges of a tax system”, Brussels Studies [Online], BSI synopsis, No 133, 25 March 2019. URL: https://journals.openedition.org/brussels/2499
Contact
Benjamin Wayens, Senior Editor: bwayens[at]brusselsstudies.be

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