LCT hike dropped

The Federal Government's proposed 32 per cent increase in the Luxury Car Tax (LCT) was defeated in the Senate today. The increase, announced in the May federal budget, was to take effect from July 1, 2008. Had the Labor Government's plan made it through the upper house, the LCT rate would have been increased from 25 to 33 per cent.
 
In anticipation, the Australian Tax Office (ATO) took the unprecedented step of instructing the automotive industry to collect the tax ahead of the legislation change.
 
Family First Senator Steve Fielding sided with the Opposition to vote down the legislation at its second reading today. The vote was recommitted after Coalition Senator Sue Boyce embarrassingly failed to attend a division in Parliament last night.
 
An independent Victorian senator from the state's east, Fielding argued farmers and those in the tourism industry use cars affected by the tax threshold of $57,180 as work vehicles.
 
"Family First wants exemptions from the extra tax for commercial vehicles designed to carry seven or more passengers in tourism operations and also an exemption for four wheel drive vehicles that are registered in a rural area, in recognition that families in rural and regional Australia are doing it tough," Fielding said on Tuesday.
 
According to local vehicle sales statistics, sales of vehicles in "core 'luxury' segments" fell by 19.3 per cent last month compared to the same month last year. In announcing its VFACTs vehicle sales stats for August, the Federal Chamber of Automotive Industries attributed the downturn, at least in part, to the proposed increase in LCT (more here).
 
The defeat of the tax increase has been greeted with considerable pleasure by dealers and manufacturers who campaigned hard against the increase.
 
Mercedes-Benz Senior Manager Corporate Communications, David McCarthy, called the defeat of the LCT increase "a rare outbreak of commonsense".
 
"The Government unilaterally formulated this increase and at no time consulted the industry -- perhaps they will use the opportunity now," McCarthy told the Carsales Network.
 
"The overwhelming percentage of revenue raised under the LCT is via cars that are priced below $75,000. Taxing such cars that provide better safety, lower emissions and that often pioneer technology is not good policy. And completely at odds with the Government's stated intentions in these areas…
 
"Most of the cars hit by LCT are not luxury cars in the spirit of the original legislation -- as evidenced by the fact none of the local manufacturers supported the increase in the tax," McCarthy said.
 
Porsche Cars Australia's public relations manager Paul Ellis said the company was pleased commonsense had prevailed on the issue of the increased LCT, which was "predicated on the false presumption that raising the tax would be a cash cow."
 
"The Government's analysis of the luxury car market was naive and flawed because the downturn in sales as a result of the increase in tax would have rendered it, at best, revenue neutral," said Ellis.
 
The proposed LCT increase brought "aggravation for dealers and customers, with no real benefit," he said.
 
The Greens sided with the Government to support the increase after it was agreed that lower fuel consumption vehicles under $75,000 would be exempted from LCT. The Government claimed the Greens' concessions would have cost around $36m. This was four times some industry source's estimates for the same concessions.
 
According to the Government, the defeat of the bill will cost an estimated $550 million in lost revenue.
 
Prime Minister Kevin Rudd launched a stinging attack on the Coalition after the bill was defeated. He accused them of delivering a $550 million tax relief package to "Porsche drivers."
 
"They [the Coalition] have voted for a cheaper luxury car for Australia -- saying everything I believe about the priorities of those opposite... $555 million which you chose to provide to the Porsche drivers of Australia as opposed to $555 million for the public transport needs of Australia," Rudd told The Australian newspaper.
 
"[It's] $555 million for Rolls-Royces [and] $555 million less for urban rail," he fumed.
 
The Government is considering plans to reintroduce the bill.

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