Australian Luxury Car Tax: Increased To 33%

Motoring Channel Staff - 12/May/2008

Canberra, Australia — The cost of luxury cars is about to rise after the Australian Federal Government announced it would increase taxes on certain goods.

The luxury car tax has risen from 25% to 33%, a rise of 8%, which would increase the price of an S-Type Jaguar by around $2600.

Treasurer Wayne Swan said "We don't think it's unreasonable that people who've done well in recent years, particularly from government decisions in terms of top-end tax cuts, just pay a little more for a luxury car," he said.

The new government is making a number of budget cuts, most of which are aimed at those in the top salary brackets.

In tax parlance, a 'luxury car' is not just a BMW or a Lexus, but any vehicle that costs more than $57,000, so in actual fact the 8% tax increase relates to a range of vehicles.

Cars above the $57,000 make up about 100,000 new car sales per year in Australia, or about 10% of annual sales.

Malcolm Turnbull, the Shadow treasurer, said the tax would effect all motorists: "It adds to the cost of one part of the motor vehicle universe and inevitably the price of other vehicles will move up, because that will give them a bit of headroom. So all cars in Australia will be more expensive as a result of this," he said.

The Federal Chamber of Automotive Industries (FCAI) labelled the new tax increase bad policy. The FCAI's chief executive Andrew McKellar has made it clear that he wants independent senators to block the change in parliament.

"Some of these larger-sized family vehicles will be impacted by this tax," said Mr McKellar. "I would hardly describe those sorts of vehicles as being at the luxury end of the market, yet over time they have been captured by this tax because the threshold has not kept pace with inflation," he said.

Do you agree with the new tax? One argument is that the tax should stay, but the definition of a 'luxury car' in taxation terms should be changed to vehicles costing $70,000 or more.

Update: Late last night the managing directors of both BMW and Audi spoke out against the Government's proposed changes to the luxury car tax, labelling them disappointing and counterproductive.

Guenther Seemann, the Managing Director of BMW Group Australia said, "Over the years luxury brands pioneered new safety technologies such as airbags, ABS brakes, and Electronic Stability Control. Today, mass market brands and their customers reap the rewards.

"Likewise, luxury brands are today at the forefront of engineering cleaner cars which emit less CO2 emissions. For example, the BMW 530i emits nearly 20 per cent less CO2 than an equivalently sized and powered Holden Calais V.

"The logic of higher tax rates for cars with lower CO2 emissions is flawed.

"A tax system based on CO2 emissions would align better with the Government’s position on the environment," added Mr Seemann.

Audi's MD, Joerg Hofmann, said the new tax change will have serious ramifications for the competitiveness of the Australian automotive industry, and the car-buying public in general.

"The Federal Government’s surprise tax increase could see the price of premium cars rise unnecessarily, affecting families and individuals who are prepared to invest in motor vehicles with the latest technological innovations – from advanced safety and driver assistance systems, to cleaner, greener engine technology," Hofmann said.

Hofmann says he trusts that the Prime Minister will, nonetheless, stick to the Government’s scheduled reduction in tariffs on imported cars from 10 percent to 5 percent from 2010.

"I hope Mr Rudd will honour the original agreement, reducing import tariffs in 2010," Mr Hofmann said.

"If this tax increase is truly intended to help reduce inflationary spending, then where is the tax hike on expensive jewellery, luxury powerboats or private jets?,” Mr Hofmann added.

The VACC also weighed into the debate. The Senior Manager for Government and Corporate Affairs, David Russell, said: "Luxury Car Tax is inherently unfair. $57,123 is the current threshold, but this figure has not kept in step with vehicle pricing. Many family models, especially when optioned with accessories, now fit into this price bracket.

"The timing of the announcement has also caused some surprise. The Federal Government has invited Mr Steve Bracks to carry out a comprehensive review of the Australian automotive industry. Submissions to the review are due in this week. So it seems surprising to the VACC that Mr Swan did not consult Mr Bracks or wait to hear the results of his review, which is due to consider LCT.

"VACC is still at a loss to see why cars are deemed the most luxurious of luxuries. Luxury is subjective. Boats, private jets and helicopters, international holidays, jewellery, furniture even Plasma televisions are luxury items to some. Yet these high priced goods are not taxed as luxuries," said Mr Russell.

"The local automotive manufacturing industry is already fighting for survival. The LCT increase is another body blow which will affect sales, after-market service, jobs and the local economy. The Government should recognise that by putting up taxes, it has jumped the gun on the Bracks’ Review," Mr Russell said.

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