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Is it Time we Scrap the Luxury Car Tax?

Following changes to the thresholds for the luxury car tax, the future of the impost is once again in the spotlight, especially now that Australia’s days of local auto manufacturing are well and truly in the rear-view mirror. The measure was first 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.

On the back of the changes in 2022, the 33% tax applying to imported vehicles less than two years of age now covers a value in excess of $71,849 including GST, or a threshold of $84,916 for fuel-efficient vehicles where that car consumes no more than 7L of fuel per 100km.

Given the tax contributes hundreds of millions of dollars to the Federal Budget, 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 negotiations of a free trade agreement. But while the amount of tax proceeds may seem vital to the country, the costs to administer the tax are arguably as much as what it reaps.



What 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 a dire position thanks to the global supply chain crisis, as well as issus securing stock. Interest rates are now on the rise, but even at historic lows, the industry has been seeing sales slide for some months now after a brief respite. All the while, more buyers are 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 natural disasters 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 – that would mean higher thresholds that are more ‘friendly’ to new car buyers to day – 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 to stave off a potential recession. Let’s not even get started on those unnecessary import tariffs either…for now at least.