‘Pure greed’: Government novated lease deal slammed

A Victorian government organisation with more than 22,000 employees is under attack over its salary sacrifice scheme.

EXCLUSIVE

A Victorian government organisation with more than 22,000 employees is under attack over its salary sacrifice novated car leasing scheme.

Monash Health is Victoria’s largest public health service, with its services covering more than 20 per cent of metropolitan Melbourne.

It runs the Monash Medical Centre, Monash Children’s Hospital, Casey Hospital, Dandenong Hospital, Moorabbin Hospital and a range of specialist medical centres across more than 40 locations across southeast Melbourne.

Its staff are offered a range of employee benefits, but it is the option to enter into a novated car lease with leasing giant Maxxia using salary sacrifice – and the potential for the arrangement to leave lower paid employees in financial hardship – that has some senior staff members seeing red.

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Monash Medical Centre is a major Victorian health care provider.

Dr Michael Keane, an anaesthetist at Monash Health, said the issue came to his attention early last year, when he was thinking of getting a novated lease for an electric vehicle.

Novated leasing is a finance arrangement between an employee, their employer and a leasing company that allows employees to part-pay for a new car lease from their pre-tax salary under a salary sacrificing arrangement, with the remainder payable from their take-home pay.

It’s pitched as a way for workers to reduce their tax payable, while also getting a new car, the cost of which is packaged up with extras such as insurance, extended warranties, roadside assistance, servicing and maintenance, fuel, tyres and incidentals, such as car washing and detailing.

Upon closer examination of his novated lease proposal, Dr Keane told news.com.au the numbers “didn’t stack up” as a luxury car tax charge had been added in error and the interest rate was not disclosed, but was calculated by a commercial lawyer he engaged to be about 15 to 17 per cent.

After discovering one of the big four banks offered novated lease finance at a much cheaper 8.5 to 8.9 per cent, Dr Keane was directed to talk with the payroll office within Monash Health and was told that the executive team was aware of issues with the product and was looking into it.

Upon following up nine months later, Dr Keane was once again told that the executive team was aware and that he should put his complaint in writing.

Dr Keane said the reply he received to his written complaint was “concerning and distressing” and after engaging a lawyer to look into the exclusive contractual arrangement between Monash Health and Maxxia, he was subsequently invited to a meeting with Monash Health’s senior executive team.

Dr Michael Keane, an anaesthetist at Monash Health said Maxxia’s novated leasing figures “didn’t stack up”.

Dr Keane declined to comment on what was said at the meeting, but news.com.au has seen a copy of a letter he sent to the executive team following the meeting.

“There was significant discussion and dissension by some members of the Executive on my proposition that Maxxia’s current interest rates were uncompetitive,” Dr Keane wrote.

“There was a firm position taken by some that the interest rates included other fees and charges which related to Maxxia’s service offering. That is however simply not true.”

A major concern with the deal between Monash Health and Maxxia is that the contract is exclusive, which means employees cannot seek alternative financing for their novated lease. Companies often enter into novated lease contracts with specialist salary sacrificing businesses, but in some cases employees are free to choose their finance provider, known as a self-managed novated lease.

In a statement a spokesperson for Maxxia said that while it “does not comment on specific contractual arrangements, we can confirm that we were appointed as the provider to Monash Health in 2017 as the result of a competitive tender process”.

The spokesperson denies its contract with Monash Health is exclusive in nature.

“If an employee does elect a novated lease as their financing preference, they then have a range of choices available to them, including choosing a financier from the panel that Maxxia has available or nominating their own financier and taking a self-managed lease,” Maxxia said.

But Dr Keane and another Monash Health doctor, who asked for his name to be withheld, told news.com.au they were not offered a choice of finance provider.

During the meeting, it is understood that the executive team acknowledged that lower paid workers may be signing up to novated leases that do not provide a financial advantage and in some cases may be to their financial detriment.

“As the Executive admits … most novated leases are undertaken by the less well-paid members of staff who perhaps don’t have the skills to dissect and analyse a complex lease offering,” Dr Keane wrote in his follow-up letter.

How Monash Health promotes salary sacrificing – including for a novated car lease – with Maxxia on its website. Picture: Monash Health.

For people in higher income tax brackets, novated leasing can be an effective way of reducing their tax, but the lower your marginal tax rate, the less benefit you receive.

“Monash Health is aware of the situation and the effect on even the lowest paid workers,” Dr Keane told news.com.au.

“However, I am not sure if Monash Health agrees or not that there is a problem. This is a reasonable question to be asked.”

Dr Keane said that he has suggested to the executive that they look to renegotiate the terms of their agreement with Maxxia, but has been told that there was nothing management could do about the arrangement as “a contract is in place”.

“I believe that significant pressure should be brought to bear on Maxxia by Monash Health to insist on amending the contract,” Dr Keane said.

After news of his complaints reached Maxxia, Dr Keane was then offered him “a one-off opportunity for a self managed novated lease” which he did not take up.

“If there are now exceptions being made to the current contracted arrangements with Maxxia, then Monash and Maxxia should permit such arrangements for all employees immediately and as a matter of course,” Dr Keane said.

Frustrated at the lack of action, Dr Keane requested a copy of the contract between Maxxia and Monash Health under Freedom of Information legislation.

The contract was due to be released by the end of February, but Monash Health did not meet that deadline.

“It is reasonable that everyone should be made aware of what Monash received for entering into an exclusive agreement. Monash Health is our community health service,” Dr Keane said.

Dr Keane said both Monash Health’s Senior Medical Staff Association and the Junior Medical Staff Association have “demonstrated discontent with the current Maxxia offering”.

Maxxia is one of Australia’s largest salary sacrifice providers. Picture: Maxxia.

The Monash Health doctor, who asked for his name to be withheld, told news.com.au: “For years Maxxia have been quite manipulative, including not informing us of the interest rates being charged for car loans,” he said, adding that the deceptive practices also included packaging “non-competitive insurances” into novated lease deals.

He said in the case of his own novated lease, he was offered an interest rate of 14 per cent, when major bank lenders were offering novated lease financing at around seven per cent.

“This extreme example of price gouging is pure greed and these salary packaging companies are abusing the monopoly they have due to these restrictive contracts.”

“In effect there is absolutely no advantage to the employee of having a novated lease via salary packaging as the incentive that is offered by the government is instead being gobbled by corporate greed.”

“But this hasn’t stopped [novated lease administration companies] falsely and widely advertising the tax benefits.”

The doctor said he reported the arrangement to Consumer Affairs Victoria, the Australian Consumer and Competition Commission and the Australian Financial Complaints Authority but was told it was beyond their jurisdiction.

The doctor told news.com.au that after Maxxia became aware of the complaints, he, too, was offered the opportunity to confidentially self-source his own novated lease finance.

Monash Health was contacted by news.com.au for comment.

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