Why luxury cars cost too much in Australia

[Express]

The breakdown: Luxury Car Tax



Five things you need to know about luxury car prices in Australia.



Drive
David McCowen
3 June 2017




The Federal Government pockets more cash than Porsche Cars Australia from the sale of a 911. Photo: Supplied



What's going on?

High-end luxury cars cost more in Australia than many other places.

Part of that is because we're a long way from manufacturing centres in Europe, Japan and the Americas, because our cars are made in a less common right-hand-drive layout, and because luxury cars have a higher than usual standard specification here.

But those factors are much less significant than the Federal Government's luxury car tax.

Australian motorists pay a significant tax on new vehicles priced above a threshold that changes from year to year.

The Turnbull Government announced this week that the luxury car tax (LCT) is here to stay for another 12 months, and that the threshold has shifted slightly, climbing to $65,094 for the 2017-18 financial year for cars that use more than 7L/100km, and remaining steady at $75,526 for cars that use less fuel than that.

The tax is imposed at a rate of 33 per cent above the threshold - so a fuel efficient car that costs $175,000 (pre-tax) requires the 33 per cent levy to be paid on around $100,000, resulting in $33,000 in LCT that pushes the car's retail price well beyond the $200,000 mark.

LCT applies in addition to other measures such as a 5 per cent import duty and 10 per cent GST, so a model like BMW's flagship 7-Series, which costs $305,461 before LCT and GST are factored in, comes in at $419,000 plus on-road costs.

The LCT threshold for efficient vehicles has increased by just $526 since 2009-10, whereas the threshold for regular cars has climbed by $7914 (up from $57,180) in the same period.

Government agencies are considering revisions to the measure, though that seems unlikely in the short term as the government continues to count on billions of dollars in LCT revenue tabled to arrive in years to come.

Few things unite the car industry like its opposition to LCT, which has been characterised as an unfair and discriminatory measure.


Why the big deal?

Australians buy a lot of cars, particularly luxury cars, which continue to grow in popularity.

One of the problems with LCT is that it is a rather blunt measurement of luxury. The most popular car subject to the tax is Toyota's LandCruiser, a vehicle that costs a fair wedge of money not because it pampers occupants, but because it is capable of taking them where they need to go. In many circumstances, that could be a rural environment or work site rendering the car more a necessity than a luxury.

The tax was introduced in 2000 partly to protect Australia's automotive manufacturing industry, which comes to a halt in October. But there's no longer a need to dissuade people from buy a BMW in favour of a Ford Falcon, which has lead to calls for it to be abolished.

The Department of Infrastructure and Regional Development has also criticised the tax for favouring diesel vehicles that produce more C02 and harmful particulates than equivalent petrol models per litre of fuel burned. Car companies say it is stifling the take-up of safer and more efficient models that cost more than regular cars as, unlike many other countries, Australia offers little incentive for low-emission vehicles.


Who cares?

You should, as LCT makes many cars more expensive than they need to be.

The treasury does, as LCT is a lucrative measure for the Federal Government, reaping $650 million in revenue in the 2016-17 financial year.

Government agencies do, as revisions to the tax are being considered as part of tweaks to taxation and environmental measures, and car companies do, as the measure no doubt has an effect on sales.


Say what?

Glen Sealey, Maserati's Australian general manager isn't a fan of the tax:

"Clearly it should be abolished."

Porsche spokesman Paul Ellis gave insight into the matter in 2014...

"The Federal Government gets more revenue than Porsche does as the importer and wholesaler, and what our dealers do as retailers, combined. We do all the work and they get the profit."

... and Mercedes-Benz spokesman David McCarthy has opposed the tax for nearly 10 years:

"Despite the opportunity to tax other luxury goods such as diamond rings, executive jets, golf club memberships and luxury cruising boats, the government has decided for some reason to punish and single out the car industry."

Former Liberal MP Joe Hockey was against the measure in 2008, before he became treasurer (and left the LCT in place).

"A LandCruiser in regional rural Australia is not a luxury vehicle, it's fair dinkum. We believe that this one is bad policy and we're opposing it."

AAA chief executive Michael Bradley:

"With local manufacturing coming to an end in 2017 it is only fair that the date be named to remove vehicle import tariffs and the luxury car tax. Nine out of ten new vehicles sold in Australia are already fully imported so there is no longer any justification to maintain these taxes."

Independent Senator Nick Xenophon spoke with Drive about LCT ahead of the 2016 election.

"It hasn't brought in the revenue that was anticipated, and I'd rather see a change to the Luxury Car Tax than the parallel import changes."


What next?

The Government had been considering a parallel imports scheme intended to reduce the cost of new cars by allowing individual motorists to source cars directly from overseas, cutting Australian dealers and distributors out of the loop. But things have gone quiet on that front.

Changes to the LCT are under consideration as part of an ongoing tax review. It's possible that the LCT could be abolished in favour of another model more closely related to emissions and efficiency, as used in the UK. The DIRD says "Governments could encourage improvements in vehicle efficiency through changes to the tax treatment of vehicles and road user charges", adding increased incentive for low or zero-emissions cars.

Another proposal surrounds pay-as-you-go road taxes that could take the place of registration or stamp duty fees, a move that could have a flow-on effect for the LCT.

The luxury car tax looks set to stay in place for now, particularly as the government is budgeting on receiving $2.7 billion in LCT revenue between July 2017 and June 2021.


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http://www.drive.com.au/motor-news/t...03-gwjmpt.html



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