Fate of Luxury Car Tax to be learned within months

The death knell has seemingly sounded for the Luxury Car Tax (LCT) in Australia.

The federal government’s negotiations with Europe on a free-trade agreement (FTA) is finally set to dismantle the much-maligned tax on European-built vehicles.

According to stakeholders, this will likely lead to the abolition of the circa $600 million annual revenue-raiser altogether.

A spokesperson for the Department of Foreign Affairs and Trade told motoring.com.au that FTA negotiations were well underway with Europe, meaning the fate of the LCT will be learned within months.

The Australia-Europe FTA is expected to come into effect from 2019.

“The Australian government is committed to pursuing a comprehensive free-trade agreement with the European Union [EU],” the spokesperson said.

“In April 2017, Australia and the EU successfully concluded a joint scoping exercise, which sets out the scope and ambition of a future FTA.

“We plan on commencing formal negotiations in late 2017, once Australia and the EU have completed the necessary domestic processes.  For Australia, this includes ongoing consultation on negotiation issues with states and territories, industry and community stakeholders.

“Both sides are committed to concluding the FTA negotiations as soon as possible. It is the practice of both sides not to comment on our negotiating positions.”

Australian automotive stakeholders have lobbied vigorously for the abolition of the LCT since its introduction in 2000, claiming that it unfairly penalises consumers for selecting some of the safest, most environmentally-friendly vehicles on the road.

Removal of the LCT along with a 5 per cent tariff currently imposed on European-built vehicles would ensure some of the most popular prestige vehicles on sale would be thousands of dollars cheaper.

The LCT is currently imposed at a rate of 33 cents in every dollar for vehicles priced above $65,094 (plus on-road costs). Vehicles which consume less than 7.0L/100km are subject to a higher green car threshold of $75,526 (plus on-road costs).

“The position of the EU is that they regard the LCT as a false tariff,” one insider told motoring.com.au. “That discussion will be front and centre in those negotiations.”

According to the peak industry body, the Federal Chamber of Automotive Industries (FCAI), the imposed luxury tariff has run its course. The tax was introduced partly to protect Australia’s automotive manufacturing industry, which will cease to exist after October.

“The Luxury Car Tax acts as a device to artificially inflate the price of vehicles offering the latest in safety and emission technologies,” said FCAI Chief Executive Tony Weber.

“The LCT is imposed at what can only be described as an arbitrary price level and doesn’t even pass the fairness test. Why is this tax imposed on the car industry when a raft of other luxury goods don’t get taxed the same way?”

While the abolition of LCT shows promise, stakeholders are equally concerned with a potential replacement – considering the tax brings in between $500 and $600 million annually.

The tax has long been criticised by the industry because it dictates an unfair definition of luxury. The most popular car subject to the tax is the Toyota LandCruiser, and more Toyotas are affected by LCT than any other marque, including versions of the venerable Tarago people-mover.

There are also concerns that non-European marques will be penalised if the LCT is only partially abolished.

“March 2019 is the cut-off date for Britain to exit the EU. That would potentially create a big market disadvantage for brands that source product from the UK – Jaguar Land Rover, Bentley, Rolls-Royce and the like – if European marques were excluded from LCT but they were not,” the insider said.

“Ditto all the Japanese brands.”

In addition, a large contingent of Australia’s “luxury car” fleet is manufactured in the US and South Africa despite wearing familiar European badges.

Mercedes-Benz Australia corporate communications manager David McCarthy said there was no logical argument for having a tariff on luxury vehicles.

“In economic terms the LCT is a rounding error in the budget but politically this area is much more difficult,” he said.

“It would make sense for the government to remove LCT altogether rather than penalise manufacturers that aren’t affected by the European FTA.

“The government never likes surrendering revenue, and we understand that. But this tax does distort the market and should be removed.”