Fuel-efficient buyers hit by Luxury Car Tax inaction

Changes to the federal government’s much-maligned Luxury Car Tax will offer consumers a small reprieve for the 2018-2019 financial year – less so if you’re a fuel-efficient shopper.

From July 1, the tax will be applied to all vehicles priced $66,331 and above – an increase of $1237 on the previous 12 months. Above that threshold, the tax slugs motorists 33 cents for every dollar spent.

Controversially, vehicles classed as fuel efficient – those that use less than 7.0L/100km combined – will have LCT imposed from $75,526. That figure goes virtually unchanged for the third year in a row, despite movement on the entry threshold and the fact vehicles have become markedly more efficient in that time.

The government’s changes are said to be derived from an increase in Australia’s consumer price index.

So far only Lexus has announced it will pass on the LCT price decrease. The adjustment will reap buyers savings ranging from $2 to $371.

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.

The LCT’s future is under a cloud in the long-term, as Australian continues negotiations with Europe over a Free Trade Agreement.

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

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.

According to the peak industry body, the Federal Chamber of Automotive Industries (FCAI), the imposed luxury tariff has run its course. The tax was initially introduced to protect Australia’s automotive manufacturing industry, which now no longer exists.

“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. The federal government raked in an estimated $710 million from the LCT during the 2017-2018 financial year.

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.