MB's radical 'Luxury Car(bon) Tax' plan

Mercedes-Benz has presented an innovative -- but potentially confronting -- alternative to the proposed amendment to the Luxury Car Tax (LCT).

The LCT enquiry currently being conducted by the Senate Economics Committee is providing a platform for the prestige-car importers to air their grievances. After meeting in Sydney last week (more here) and Adelaide the week before that, the enquiry arrived in Melbourne on Wednesday.

At the Melbourne session, the Mercedes-Benz MD, Horst von Sanden and David McCarthy, head of PR for the company, jointly submitted a plan that, if adopted, would eventually lead to the LCT being phased out.

But that's just one element of the three-point plan being promoted by the German importer. Under the scheme, the government could balance LCT revenue lost with revenue gained through a broad-based carbon tax, mitigated by 'carbon credits' for cleaner-running vehicles.

Benz sees the plan offering multiple benefits. First and foremost there's that incentive for vehicle manufacturers and importers to introduce more environmentally-sensitive vehicles sooner. In addition, extra revenue from the carbon tax would fund such things as the ACIS review and the Green Car Fund, whilst still leaving revenue in reserve to reimburse consumers badly affected by the added impost.

According to the Benz strategy, from July 1 next year the LCT would diminish from the current rate of 25 per cent to 20 per cent, with an incremental (five per cent) decrease for each subsequent year. By the end of the 2013/14 financial year, the LCT would effectively cease to be. 

The second element of the plan also takes effect from July 1, 2009, and applies a five percent 'carbon tax' to all new vehicles sold, with that tax increasing by five per cent per year after that. After five years, the carbon tax would be as high as 25 per cent and would more than compensate for the revenue lost with the LCT.

The third leg of the Benz plan is based on carbon credits for vehicles that emit fewer CO2 particles. A series of sliding scales with differing thresholds would reward the cleaner cars and tax heavily the cars that are more profligate.

Benz has timed the submission to dovetail neatly with increased community concern about climate change and the effects that carbon trading will have on the price of goods and services. The Federal Government has already conceded that some consumers will need to be reimbursed for the added costs incurred in carbon trading. As Benz sees it, the additional revenue raised will more than cover those rebates.

"Hopefully there's enough money there [raised by the Benz tax scheme] to compensate those who are badly affected by it," says McCarthy.

"We understand that the [Federal Government's] budget needs revenue," he told the Carsales Network.

"We don't accept the tax, so rather than just saying why [the government] shouldn't do it, that's why we've come up with a proposal -- albeit probably not perfect -- but a proposal that actually offers a solution."

Car companies that could fall foul of the Benz solution would be those heavily dependent (in more ways than one) on larger SUVs and large passenger cars. McCarthy refutes that the local manufacturers will necessarily be disadvantaged by this scheme.

"2010, Ford and their large car is going to be using an international engine. Holden already use an international engine. Toyota use a version of an international engine.

"Now, every single manufacturer and importer in Australia, sells cars in Europe. They manufacture them or export them. They will meet emissions standards in Europe -- and Asia -- that are well within the confines of that plan.

"The technology is either there or it can be developed. It costs money to introduce [that technology], so the carbon tax can fund ACIS, it can fund the Green Car Fund -- to allow the local manufacturers to produce those vehicles.

"Some of the members [of the FCAI] will go 'Oh my God', but we don't operate in a vacuum in Australia -- you've still gotta address the issue."

The Benz plan also runs the risk of potentially antagonising buyers of new cars below the LCT threshold of $57,180, but carbon trading will soon be a fact of life anyway -- although the government has not officially confirmed new car purchases will be subject to any carbon trading levy. In McCarthy's view, that's ridiculous, when approximately 15 per cent of Australia's greenhouse gas emissions can be traced back to road transport.

The Benz proposal is not perfect, as McCarthy admits, but Benz prefers to adopt a proactive stance on the issue, in the expectation of a zero-sum result for the concerned parties.

"Hopefully, what [the plan] does is generate some discussion," says McCarthy.

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