The Luxury Car Tax (LCT) threshold for luxury cars will increase to $65,094 for the 2017-18 financial year, in line with an increase in the ‘All Groups’ Consumer Price Index (CPI).

The LCT threshold for fuel-efficient luxury cars will remain at $75,526.

The Federal Government has decided that the LCT will remain in place for at least one more year. That gives us another 12 months to work on getting the government to drop this ludicrous, unfair and discriminatory tax.

LCT is an arbitrary measurement of luxury. Why is there a tax on luxury cars but not on luxury boats, jewellery, furniture or homes?

The Department of Infrastructure and Regional Development (DIRD) has also criticised the tax for favouring diesel vehicles that produce proportionally more C02 and harmful particulates than equivalent petrol models. Car companies complain that 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.

At a rate of 33 percent above the threshold, a fuel efficient car costing $175,000 (pre-tax) requires the 33 percent 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 percent import duty and 10 percent 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 $7,914 (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.

What is a luxury car anyway?

The most popular car subject to the tax is the Land Cruiser. It qualifies because of the amount of money it costs but, in reality, it is often more of a work necessity for farmers or others needing off-road access.

The LCT came into being in 2000, partly to protect Australia’s automotive manufacturing industry. But with Australian automotive manufacturing ceasing this October there’s no longer a need to dissuade the purchase of a foreign model in favour of a locally produced one.

Supporters of abolishing the LCT

Many key figures have spoken out against the LCT. They include:
Glen Sealey, Maserati’s Australian general manager: “Clearly it should be abolished”.

• Porsche spokesman, Paul Ellis: “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.”
• Mercedes-Benz spokesman, David McCarthy: “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 (prior to becoming Treasurer and leaving the LCT in place): “A Land Cruiser 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 10 new vehicles sold in Australia are already fully imported, so there is no longer any justification to maintain these taxes.”
• Independent Senator, Nick Xenophon: “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.”

Follow the money

Providing $650 million in revenue in the 2016-17 financial year, it’s easy to understand why the Federal Government is reluctant to scrap the LCT.

The government, however, is always reviewing tax laws, and changes to the tax are being considered as part of tweaks to taxation and environmental measures. The LCT could be abolished in favour of another model more closely related to emissions and efficiency, as used in the UK.

The DIRD argues that “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 concerns 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.

However, with the government budgeting for $2.7 billion in LCT revenue between July 2017 and June 2021, the LCT looks set to stay in place for the short to medium term.