LCT increase passes through the Senate

It's official. Spend more than $57,180 on a new car and you'll incur a 33 per cent tax rate, not the 25 per cent payable prior to July 1.

The Senate passed the legislation earlier this week, subject to amendments from the Greens and two independent Senators, Nick Xenophon and Steve Fielding (more here).

Management at Mercedes-Benz Australia is not exactly sanguine about the tax increase.

"This hotch-potch of contradictory, illogical amendments has made bad legislation worse," says David McCarthy, Senior Manager for Corporate Communications at Mercedes-Benz.

"I find it interesting that the Greens, in their first act of legislative cooperation with the government, have supported an amendment to give tax concessions to people who cut down trees.

"The government's desire for a political outcome -- unfortunately aided and abetted by the Greens and the independents -- has not just put at risk jobs amongst importers, but also in the local industry.

"The very, very obvious lack of consultation with the industry has delivered perhaps one of the worst pieces of automotive legislation in the last couple of decades. The government, the independents and the Greens should be ashamed of themselves, for delivering such a contradictory bill.

"The revenue concessions, allied with the drop-off in sales, are likely to see the government ledger on the LCT in the red [within] three years.

By contrast, BMW sees some reason for optimism, with 'green' vehicles free of the tax already the top selling variants in their model range and that trend may escalate with the changes to the LCT. The X3 2.0d is the best-selling variant in the X3 range and the 520d is the best-selling 5 Series, so the increased tax rate for the LCT just might push more buyers in the direction of those best-sellers.

So BMW has responded to the news by issuing a press release listing the company's offerings that are not subject to the LCT at all, following intervention by the Greens in the Senate.

The Greens' amendment to the legislation provides a dispensation from paying the tax for vehicles worth up to $75,000, as long as those vehicles use as little as 7.0L/100km of fuel or less. Virtually without exception, this legislation favours diesel-engined vehicles, as is apparent from BMW's list, which comprises the 120d, 320d, 520d, X3 2.0d and a vehicle under consideration for Australia, the 330d. Interestingly, with the exception of the 330d, BMW's tax-free cars are all powered by the same 2.0-litre turbodiesel engine.

BMW expects approximately 2000 customers over the next 12 months will gain from this new tax regime. Using the example of the reasonably well-specified 520d, BMW estimates that the purchase price will reduce by $5000 overall, with just a small component of the price above the $75,000 cut-off subject to the 33 per cent LCT impost.

"With the new Luxury Car Tax regime in place, we will continue to look at other models consuming 7.0-litres per 100km or less that could be offered in Australia," says Guenther Seemann, MD at BMW Australia.

"I must say this move does strengthen our argument for the introduction of the magnificent 330d in due course.

"I am sure there will be a significant market in Australia for a premium compact sporting sedan that has the thirst of a four cylinder, the smoothness of our renowned straight-six and the performance of a V8," he said.

In the case of Mercedes-Benz, there are no small-capacity diesel equivalents to the X3 and the 520d to take advantage from the Greens' amendment, compounding the unfortunate result.

"We're clearly disappointed -- and not because we didn't win. We're disappointed because it's a bad outcome," says McCarthy, who estimates that 70 per cent of the LCT revenue comes from cars under $75,000 and up to 50,000 vehicle buyers per year will be affected.

"[There are] 50,000 people that the government are saying: 'You're too rich', yet those same people are the ones who will benefit from the change in the Medicare levy -- if that gets through -- they're the same people that will continue to get family tax benefits, they're the same people that continue to get generous superannuation concessions.

"Yet, for this one part of their life: 'You're going to pay. Why? Because we want an illogical, inequitable tax.' Why don't they apply the same politics to the benefits they pay people?

"You've got other issues as well," says McCarthy, touching on the complexity of administrating taxation for the sales of new LCT-incurring cars (see our earlier report here).

"You've got the depreciation limit [and] you've got the GST input tax limit. LCT isn't allowable as a GST input. The depreciation limit is $57,180. Does that mean the depreciation for a 'seven-litre' car... is the actual purchase price up to $75,000 or is it $57,180?

"So you've got a degree of complexity and this is what happens when you do policy on the run, you don't consult and don't consider the implications."

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