Benz proposes 'hybrid' LCT exemption

A proposal from Mercedes-Benz Australia holds out the prospect of knocking around $15,000 off the price of a new S-Class. The only catch is getting the Australian government to agree to further cuts in the Luxury Car Tax (LCT).

Back in 2008, when the government announced it would raise the Luxury Car Tax from 25 per cent to 33, it grudgingly agreed to an amendment from the Greens allowing an exemption for cars that used less than 7.0L/100km and were priced below $75,000. At the time, the government only agreed to the amendment to get the legislation through the Senate. Based on that precedent it seems unlikely, on the face of it, that a government of any persuasion would agree to a new amendment eroding the LCT revenue base even more.

Yet David McCarthy, Senior Manager for Corporate Communications at Mercedes-Benz Australia (MBA) believes the prestige brand's latest idea would suit the policy platforms of the Rudd government or a future Abbott administration.

"We've seen how the standard LCT threshold has moved; it's now over $60,000. The fuel efficient limit really hasn't moved," he told motoring.com.au during the new S-Class launch last week.

"There are two things I'd like to see, predicated on the premise that the government or the coalition are not going to remove the Luxury Car Tax because it's a large revenue item – $500 million or thereabouts.

"First off, the fuel efficient limit properly indexed. And secondly, I'd like consideration to be given for the discussion to start, about another level being introduced that doesn't have severe revenue implications, but actually meets both parties' requirements to reduce emissions – and that is a 5.0L/100km limit,” McCarthy opined.

"If your vehicle is rated at 5.0L/100km or less, there's an incentive. Let's say the 7.0L/100km limit should be $77,500 or whatever. Make the five-litre [exemption limit] $100,000 or $120,000 or something.

"If you look at the cars that are around that, there are some at the very small end of the market. It's not going to impact them. It's cars like [S 300 BlueTEC Hybrid], cars like [Porsche] Panamera that you'll still get substantial revenue from the Luxury Car Tax for that vehicle, but the cost of providing that technology is offset by having a higher threshold.

According to McCarthy applying a 5.0L/100km exemption limit of $125,000 would result in a reduction of around $15,000 on a car priced at $250,000.

"What it does is it meets the policy settings that the opposition have put forward in terms of 'Direct Action', and the [Labor] government's desires to reduce greenhouse gases, et cetera.

"I think it would be worthwhile for that discussion to take place. You would squeeze [tax] revenue a bit, but you're actually encouraging lower-emission vehicles – and that technology," the Benz PR chief said.

The S 300 BlueTEC Hybrid already mentioned is fitted with the same 2.1-litre diesel and 20kW electric motor combo that also powers the company's E 300 BlueTEC Hybrid.

Benz's S-Class hybrid uses 4.4L/100km of fuel, according to the NEDC combined-cycle test. The E 300 would also benefit from the sub-five-litre exemption band, but cars like BMW's ActiveHybrid3 (5.9L/100km) and ActiveHybrid5 (6.8L/100km) would not.

Thus, there's a risk that the proposal will be seen as one that particularly serves the interests of Mercedes. McCarthy acknowledges that risk, but offers a counter response.

"It's not us that pays the Luxury Car Tax, it's the customer. Why should someone be penalised for making a decision to buy a vehicle that is lower emission? Of course we have an interest. If the car is cheaper potentially you'll sell more. Sure, there are some side benefits, but it's a good [public] policy outcome," he stated.

In 2008 Mercedes-Benz Australia pushed for the gradual implementation of a carbon tax to replace the LCT. Since then, the need for the prestige brands to attack the LCT has faded as the importers offered a broader selection of cheaper, fuel-efficient models that are exempt from the tax.

"The seven-litre limit has decisively changed buying behaviour," McCarthy explained.

"I'm the first to admit that when we had that discussion with the Greens... they asked me how many cars in our sales at that time potentially it would impact on, I thought a 1000, 1500... Well, it's not. It's all of A-Class, it's all of B-Class, it's all of CLA, it's all of C-Class other than the six-cylinder and the AMG, it's all the four-cylinder E-Classes, ML 250... It's [now] very close to 50 per cent."

For the year to date in 2013, that would be at least 6000 vehicles sold, according to VFACTS – with six more months of the year to run. Many of the models the Benz exec mentioned wouldn't have incurred LCT anyway, unless extra-cost options took their purchase price above the new threshold announced by the Australian Taxation Office a month ago. Indeed, C-Class sales alone would account for at least double the 1500 units originally suggested by McCarthy – and in just six months.

"It's not just for us, it's for BMW, it's for Audi," McCarthy also noted.

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