LCT is changing the cars we drive

A minority of passenger-car variants in the local Mercedes-Benz account for nearly two thirds of the brand's sales, year to date. And many of them have fuel efficiency in common; 15 of the 36 volume-selling variants are rated at or below 7.0L/100km.

The 36 variants amount to 41 per cent of the 87 local models sold in Australia.

"That's pretty much a reversal of a couple of years ago, where it would have been less than 30 per cent were exempt or fuel efficient," said David McCarthy, the prestige brand's Senior Manager for Corporate Communications.

It's not that Benz buyers are environmentally conscious necessarily. None of those 36 variants — out of 87 — incur the full Luxury Car Tax. That's the actual reason they're so popular.

"A lot of people, when they look at the price of a car... and [they] see 'Luxury Car Tax: Zero', [they] like that, because the government's already getting import duty and GST..." Mr McCarthy told motoring.com.au this morning.

What's more, there are more models on the way to exploit the fuel-efficient car amendment introduced by the Greens to the Luxury Car Tax legislation.

"Obviously, with A-Class, as we add models there, they're all exempt," Mr McCarthy continued. "If you add four [variants of A-Class], it will raise the percentage, [because] they're exempt."

The Benz spokesman believes that Audi and BMW are likely experiencing similar growth in the percentage of vehicles that sidestep the Luxury Car Tax. Certainly all three German prestige brands have gone hog-wild in recent times, bringing in new models to exploit the Greens' loophole since the government raised the LCT from 25 to 33 per cent back in 2008.

It sounds like a good news story... an example of market forces guided by environmental issues, such as the government is aiming to achieve with its carbon tax. But the Benz executive takes little comfort from what the VFACTS figures tell him. The fuel-efficient car dispensation was foisted on the government by the Greens in exchange for supporting the legislation. Fundamentally the LCT remains a revenue-gathering device for the government, rather than the incentive to opt for eco-friendly cars that the Greens (and elements of the automotive industry) might have preferred.

In the most recent change to the tax the government has raised the threshold — the price at which cars incur the tax — from $57,466 to $59,133. That has effectively reduced the price of a car by around $500 if priced above the previous threshold, but below the new one. In the main that has favoured cars that aren't known to be better for the environment. As we reported last week, it's vehicles such as Toyota's Kluger and Prado offroaders or a couple of Holden's locally-manufactured Commodore variants that will benefit most from the new threshold.

But the higher threshold of $75,375 for vehicles using less than 7.0L/100km is unchanged. As David McCarthy sees it, buyers of V8-powered Holdens and large-displacement Toyota SUVs are getting a price reduction, but the Mercedes E200 BlueEFFICIENCY will remain priced as it is — at $79,900. A component of that price — $1044 — is purely Luxury Car Tax. There's no saving to the buyer of this car, because LCT doesn't apply for the first $75,375 of the purchase price, and that threshold has not moved.

Mr McCarthy has previously told motoring.com.au that the government's change to the LCT "doesn't meet the spirit of the agreement" forged with the Greens to get the legislation through Parliament. He further contends that the migration of prestige brand buyers from fuel guzzlers to fuel misers will leave 'working families' in seven-seat Toyotas to pay the government's tax. And the importer's proposal four years ago to apply a broader-based sliding scale tax based on CO2 emissions looks to be of merit now more than ever.

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