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Is it Time we Scrap the Luxury Car Tax?

With the demise of the Holden brand now pencilled in for the end of the year, discussion has once again turned to the luxury car tax. That is, a measure that was introduced with the intention to help protect local manufacturers amid the slew of high-spec vehicles that one can only assume were deemed to be an ‘impediment’ to jobs and the economy.

With the 33% tax applying to imported vehicles less than two years of age and valued in excess of $67,525 including GST, or a threshold of $75,526 where that car consumes no more than 7L of fuel per 100km, the topic is right in the spotlight as motoring groups call for its abolition. However, the government has distanced itself from scrapping the luxury car tax, with Treasurer Josh Frydenberg firmly saying, “we have no plans to remove that”.

Given the tax will contribute up to $720 million to the Federal Budget by 2022-23, it’s not like the government doesn’t have an incentive to prop up another tax as long as Joe Public foots the bill. That’s despite the fact that the tax has long been considered a thorn in the side of the European Union and any prospect of a free trade agreement being struck with Australia. But while the amount of tax proceeds may seem like a sizeable sum, the costs to administer the tax are arguably as much as what it reaps.

 

 

What other circumstances have changed?

One of the key differences now, as opposed to when the tax was first introduced, is that the new car industry is in its worst position since the Global Financial Crisis. Let’s not forget either, interest rates are truly at an all-time low. For approximately two years now, there have been continuous sales declines each and every month. Holden’s sales have been in the gutter for much of that time, dropping significantly, with buyers transitioning to SUVs and other more-affordable and reliable brands.

In addition, the impact of the tax on some of those hardest-hit by natural disasters has started to unfold. More specifically, many farmers have bought vehicles that are slapped with a luxury car tax – and no, they’re not driving around in Mercedes AMGs or Ferraris for that matter, but workmanlike vehicles such as the Toyota LandCrusier or Prado – yet all the while, the effects of the drought continue to weigh on their livelihood. Motorists are ultimately the ones who foot the bill for the LCT, even though it was designed to be absorbed by dealerships.

 

 

The reality of the situation

Frankly, at the end of the day, Australians shouldn’t be slugged to protect an industry that no longer exists. The local manufacturing industry, while beneficial from a jobs perspective, was artificially supported for longer than was ever realistic or sustainable. In fact, it’s easy to argue that the plug should have been pulled on the LCT earlier, back in 2017 when Holden ceased manufacturing operations.

Even if the government has a vested interest in maintaining an otherwise unnecessary tax, the mechanics of it just don’t make sense when not only has it not been tied to inflation, but we are supposed to be trying to encourage people to adopt fuel efficient cars. Yet, here we are, punishing motorists who purchase ‘eco-friendly’ vehicles. That the luxury car tax has lasted this long, is a true surprise, particularly if we’re keen about kick-starting consumer spending to underpin the economy. Let’s not even get started on those unnecessary import tariffs either…for now at least.

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