Australian Government announces big change to controversial tax
The Luxury Car Tax has undergone its largest change since its inception, but a new significantly higher threshold has been criticised as not enough by some.
A new Australia-European Union Free Trade Agreement (A-EU FTA) has signalled significant changes to the local automotive industry, with the controversial Luxury Car Tax (LCT) threshold increased for EVs, and tariffs on Euro-sourced cars removed.
Announced by Prime Minister Anthony Albanese yesterday, the LCT threshold will be increased to $120,000 for zero-emissions vehicles such as EVs, benefitting about two dozen models currently on sale in Australia.
Currently the LCT places an additional cost of 33 cents for each dollar above a certain threshold, and was introduced at the start of the 2000/01 financial year, partially serving as a protector of Australia’s car industry.
Despite local manufacturing ending in October 2017, the LCT has remained, and currently applies to vehicles with a dutiable value $91,387 which consume less than 3.5L/100km (previously 7.0L/100km), or $80,567 for those above it.
In its current form the LCT brings in about $1.2 billion in tax revenue annually.
The new EV-only threshold now creates three levels of the LCT in a first for the controversial tax, and extends to all EVs, not just those made in Europe despite the new FTA’s intentions.
In addition to the higher LCT threshold for EVs, the FTA has axed the existing five per cent tariff on passenger cars from Europe, which should bring down prices.
“The removal of the tariff is a positive outcome for Australian consumers and brings European vehicles in line with those imported from other major markets such as China, Japan, Korea and Thailand,” said Federal Chamber of Automotive Industries (FCAI) chief executive, Tony Weber.
“The change to the Luxury Car Tax is incremental and leaves in place an outdated measure that no longer reflects the structure of the Australian automotive market.
“Luxury car taxes were first introduced in Australia nearly 40 years ago to protect a domestic manufacturing industry which no longer exists. It serves no clear purpose other than raising revenue and continues to impose unnecessary costs on consumers.”
While it has received support from the FCAI, the Australian Automotive Dealer Association (AADA) called out the government for not implementing more rigorous changes to the LCT.
“The AADA welcomes the removal of the PVT (passenger vehicle tariff), which is expected to impact approximately 8 per cent of the new vehicle market,” the AADA said.
“However, it is disappointing that the changes to the LCT fall short of the broader reform that the AADA has continued to advocate for.
“The LCT change appears limited in scope, meaning the immediate impact on the market is likely to be modest. While increasing the LCT threshold for ZEVs (zero-emissions vehicles) provides a narrow benefit, it does not address the structural issues with the tax as a distortionary measure and a relic of an era when Australia manufactured vehicles.
“The AADA considers that this is a missed opportunity to implement a more comprehensive approach to reforming this tax through complete removal or ensuring it only captures vehicles that would reasonably be considered ‘luxury’, including vehicles commonly used by small businesses and consumers in regional areas such as the LandCruiser.
“The AADA will continue to engage with government and advocate for broader LCT reform, including targeting the tax to genuinely luxury vehicles, removing its application to accessories, and ensuring a smooth and orderly transition for implementing any changes.”
