Why the luxury car tax should go – but prosecco should not
The luxury car tax, introduced by the Howard Government in 2000, aimed to increase the price of prestige cars to protect the local car industry, but it is no longer needed as the industry is extinct.
It is not often that I find myself in furious agreement with a trade suggestion from the European Union, particularly one that is also trying to stop Australian wineries calling their products prosecco.
However, apart from the wine, the massive EU free trade submission makes an excellent point by arguing that Australia should scrap the luxury car tax which currently raises almost $1 billion a year.
This is one of those taxes that has kept on growing long after the very reason it was introduced – to protect the now extinct local car industry – has long since disappeared.
As we all now know, the luxury car tax was ultimately futile in keeping our deeply subsidised and below scale car industry going but unfortunately the tax kept going long after the industry it was meant to protect disappeared.
A tax to help save the Australian car industry
Originally the tax which was introduced by the Howard Government in 2000 aimed to increase the price of prestige cars, limousines and imported sports-cars to give the then cheaper local versions a fighting chance of retaining their market.
The idea being to get people to buy a Holden Statesman or Ford LTD rather than a Porsche or a Rolls Royce.
A couple of decades later because the tax is indexed to inflation and car prices have risen much faster than inflation, it hits many more Toyotas than Lamborghinis and the average punter doesn’t even know it is there unless they are exposed to the much cheaper price of identical cars selling overseas.
Tax now hits more Toyotas than Lamborghinis
In other words, it is almost a “perfect” tax – the public have completely forgotten about it, it has an expanding base, is basically entirely hidden from the end consumer and the original reason for the tax has disappeared.
An investigation back in 2019 by Drive found that Toyota customers paid more in luxury car tax than buyers of Porsche, BMW, Audi and Jaguar/Land Rover – convincingly showing that luxury car buyers are no longer the target.
Amounts will have gone up since then but in 2018 the tax raised $99.7 million from Toyota buyers which compared to $97 million for Porsche, $84.5 million for BMW, $81 million for Jaguar/Land Rover and $45 million for Audi.
A tax on a tax
Worse still, it is a complex tax on a tax because the threshold to apply the tax includes GST, dealer delivery and the cost of extras and options, pushing many more cars into the tax net.
The threshold has been lifted and discounted for fuel efficient cars but still adds a 33% tariff to each dollar above the threshold – $71,849 for standard cars and $84,916 for fuel efficient cars.
It is here that the Europeans have a good point – the tax really is operating as a “non-tariff barrier” and is slowing down the introduction of vehicle safety measures and also electric cars.
No doubt the Australian Government will fight hard to keep the luxury car tax in some form because it is such an easy and painless way to raise extra revenue.
What about prosecco?
Just because I agree with the highly protectionist Europeans on the luxury car tax doesn’t mean they are right about everything and doing away with Aussie prosecco is a step too far.
The argument here is that old one about regional varieties and the need to protect local names such as champagne and burgundy but the Europeans are on much shakier ground in trying to stop Australian producers labelling their wine prosecco.
The key point here is that prosecco has always been the name of the grape variety used to make the wine – a fact that wasn’t really fundamentally changed when the Italians in 2009 decided to change the name of the prosecco grape variety to glera and expanded the prosecco region to include the town of the same name.
There is also the fact that many of Australia’s best prosecco is actually produced by Europeans from that area who have used traditional methods over many decades to build up brands based on the name of the grape variety used.
Parmigiano or feta might be more complicated but Australians would like nothing better than to toast the hopeful removal of the complex and futile luxury car tax with a nice cold bottle of locally produced prosecco.
It would also be a suitable drop to celebrate closer links with the huge European market for our agricultural and mining exports, should they be agreed in the coming months.