Luxurious Automobile Tax to be axed? UK and Australia speak up free-trade settlement

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The British government has reportedly reached an internal consensus To offer Australia a free trade agreement According to a report by the BBC, the two countries will phase out import taxes (tariffs) on goods such as medicines, alcohol, metals, wine, meat and cars over the next 15 years.

The full terms of the deal have yet to be fully agreed by both sides, but the Australian government should be interested in removing the UK tariffs on its non-ferrous metal, wine and meat exports if it can reassure the UK citizen Farming Union that won’t flood the market with Australian meat – Australia accounts for 14 percent of the sheep meat going to the UK, but only 0.15 percent of all Australian meat exports go to the UK thanks to the tariffs. It may be easy to sell, but it comes at a price.

The UK’s main exports to Australia are alcohol, medicines and cars. The price the Australian government may have to pay is the gradual decline in the 33 percent luxury car tax and some alcohol tax concessions.

The LCT, as it is uniformly called in the automotive business, was introduced on July 1, 2001 by the Howard government with 25 percent. The idea was to protect local manufacturers from the overseas hoard of luxury brands that would rival the Ford Fairlane, Holden Statesman and, to a lesser extent, the Toyota Aurion.

It rose to 33 percent in 2008. Since the closure of local manufacturing with Holden in 2017 and Ford, Toyota and Mitsubishi in previous years, the luxury car tax has remained for no valid reason.

As of today (2020-2021), LCT is going into effect at a rate of 33 percent for cars that cost more than $ 68,740 and consume more than 7.0 l / 100 km of fuel. If they’re more frugal, the threshold rises to $ 77,565.

For example, on a $ 100,000 car that is 8.0 liters / 100 km, you would pay 33 percent tax on $ 31,260 (100,000 minus 68,740). So if you add 33 percent to $ 31,260, you get an additional $ 10,315 in taxes. Then add GST, stamp duty, and anything else you can put on for no good reason.

When you think of some of Australia’s most popular cars, like the Toyota LandCruiser, and even some of the high-end double cabs that easily cross that $ 68,740 threshold, the LCT makes less and less sense.

It’s not just cars, there is a heavy tax on alcohol in the Australian market. Australians love their beer, but they happen to pay a lot for it – in fact, we pay the fourth highest beer tax in the industrialized world at around 42 percent (17 times higher than the Germans and even six times higher than the USA).

With alcohol, it gets worse at around 57 percent. But until we start AlcoholExpert, it will be about cars again.

From well-known UK brands like Jaguar and Land Rover, Mini, Bentley and Rolls-Royce, Lotus and McLaren to other companies with factories in the UK like Honda and Nissan, there are a large number of vehicles coming to Australia from the UK – much more would come if the LCT were not applicable.

The discussion on the free trade agreement has been in progress not only with Great Britain but also with the European Union for a long time. In fact, we have been told many times by many European car manufacturers that they have told their representatives at home that any EU free trade agreement with Australia must mean the end of the luxury car tax. Can the UK Free Trade Agreement be the first domino to fall?

Surely the Australian government can’t start phasing our LCT for UK made cars but keep it for the Germans or Italians?

It was an interesting tax in Australia, undoubtedly supported by the “tax rich” crowd, but by its nature it is an unfairly targeted tax on cars. A $ 5 million boat doesn’t have such a tax or a $ 100,000 watch. We can all argue that a Toyota Prado is less of a luxury item than either of those two products. Either luxury is taxed as a whole, or cars that are priced at a certain price are wrongly targeted.

Also, if cars move down the electrification route, they will become expensive, and while the LCT threshold for fuel economy is close to $ 80,000, the LCT will already apply to a much larger number of European cars just because they are electric. Think of a gasoline-powered Audi Q5 compared to an electric Audi E-Tron, which is roughly twice as expensive. Reducing tailpipe emissions is now a “luxury”.

Will the Morrison administration do the right thing or continue to do politics with a tax that the Liberals themselves have introduced?

In times of incredible national debt, it seems impossible to remove a tax that brings the federal government around $ 700 million a year. However, if that means more business for local businesses that can export their goods (who then pay more taxes), the numbers can just add up.

With the latest federal budget showing no substantial support for electric vehicles or a reduction in the LCT, it is far from certain that an agreed UK Free Trade Agreement will be at least 12 months away before it potentially impacts the LCT, but it is the first and surest sign of it may begin soon too soon.

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