Australia’s luxury car tax (LCT) is set to become a thing of the past, according to Mercedes-Benz Australia senior manager of communications, David McCarthy.
Speaking to Australian media during the unveiling of the third-generation G-Class interior this week in Germany, Mr McCarthy confirmed that progress was being made on an agreement that would see a free trade agreement with the European Union and abolish luxury car tax in as little as two years.
“I feel confident, (that by) 2019 or 2020 there won’t be an LCT,” said McCarthy.
“LCT will be a casualty of an EU free trade agreement. Anyone that tells you otherwise is believing in alternative facts.”
Under the current LCT regime an additional 33 percent tax is applied to new cars for the value of the purchase price over $65,094 (plus on-road costs) and develops over half a billion dollars in revenue for the government. However, the EU has insisted that it would not go into an agreement without LCT being scraped and has cited it as being an unnecessary tariff that isn’t applied to other luxury items, like jewellery or consumer electronics.
“The EU is demanding it. The EU regard the luxury car tax as a false tariff,” McCarthy said.
“The EU arrived at that position a long time ago and all the EU manufacturers have lobbied very hard in the EU to say, you know what guys, our cars are the ones that are the most effective and if you want to have free trade with Australia, well, it’s got to go.”
“Both the major parties are committed to an EU free trade agreement in the framework that’s been discussed.”
Once legislation is approved for the EU free trade agreement, the removal of LCT on European cars will be implemented with it, leaving other manufacturers in an unfair position which leads the way to a complete removal of the tax.
“Free trade agreement implements all of its parts from day one, the challenge of working with the removal of LCT will be a great one.
“We won’t have LCT for European sourced cars (so) are you going to keep it for NAFTA, keep it for Japan, are you going to keep it for Thailand and for Korea? No, it will have to go.”
It will be a big hit to revenue but McCarthy says the government will be prepared to dump LCT in favour of the greater benefits free trade will bring.
“The government is prepared to trade-off as they have in other free trade agreements. A reduction in revenue in some areas for an increase in economic activity in other areas,” said McCarthy.
“Australian government ministers acknowledged it, they might not like it, but they know it’s got to go if you want a free trade agreement with EU. You’ve got to get rid of LCT.”
However, the new trade agreement and subsequent removal of LCT probably won’t see a dramatic reduction in vehicle prices. Instead, McCarthy suggests a staged approach implemented over a number of years.
“My personal view is that you would want to implement it over a three-year period, so, 33, 22, 11 and then 0 (per cent). Otherwise, there’ll be a lot of dislocation in the market and no one is going to shed a tear over the OEMs suffering but the government potentially is going to lose a lot of revenue.”
Once LCT is completely abolished, it will close some of the gap between cars affected and not affect by the tax, providing a more competitive market which McCarthy says can only be a good thing.
“You either want to be in a competitive market or you want to be protected. If a brand doesn’t want it removed, are they afraid a car that’s priced (closer to them) that they can’t compete with it?
“(If so) you don’t want a competitive market. I would say to them, good luck. It’s not going to happen.”