How Much More Do Australians Pay For Luxury Cars?

The Australian Automotive Association (AAA) recently stepped up its campaign against Australia's Luxury Car Tax, arguing it means Australians are paying more than their Japanese or UK counterparts for the same cars.

The AAA, which represents Australia's motoring clubs, has blamed the 33% tax for higher car pricing payable on "every vehicle worth over $61,884".

There is no denying that the luxury car tax must be removed or reformed as Australia cannot pursue a free trade agreement with Japan or Europe with such a tax in place. In effect, the LCT is a non-tariff to free trade -- originally called a "thinly veiled protectionist measure" for the local car industry. But the AAA's current analysis is misleading, and in some cases incorrect.

Removal of the LCT would cause a reduction in federal government revenue of around $500 million per year, but the AAA is lobbying the government to remove it.

Part of AAA research is provided below. It compares car prices paid in Australia to the UK for select vehicles with rate of taxes payable further analysed.

New vehicle prices paid in Australia compared to the UK

The AAA shows the BMW 3 series 328i costs $69,400 (including GST) in Australia, but is $14,013 cheaper in the UK (price of $55,386.82). A similar report prepared by the FCAI shows the above UK car prices (for September and October 2014) as being higher than the prices provided by AAA for no apparent reason.

Fuel efficiency matters

The AAA asserts that the additional $14,013 paid in Australia for the BMW is because the LCT of "33% will be added to the price tag of every vehicle worth over $61,884 sold this year". However this is not the case for the BMW 3 series 328i or the Mercedes Benz A45 AMG, shown in the above table, because both vehicles qualify as fuel-efficient vehicles and are exempt from LCT. Vehicles over the above threshold, such as the Mercedes ML350 Blue Tec Diesel, will pay total taxes of $18,324, which includes GST of $8,391 and LCT of $9,933, compared to the UK VAT of $16,735.

The AAA fails to explain why Australian prices are competitive to UK car prices in the $25,000+ price range, such as the Ford Focus shown in the table. This is because of Australia's lower GST rate of 10% ($2,027), compared to the UK's higher VAT rate of 20% ($5,007). Lower GST revenue is collected in Australia for lower priced vehicles. Higher priced vehicles attract LCT if the vehicle is not fuel efficient and if the price of the new vehicle is above the fuel efficient car limit of $75,375. This provides some encouragement for the acquisition of fuel-efficient vehicles.

LCT is not totally responsible for the differences in the car prices between countries, where the differences in the new vehicles "List Price" (excluding all taxes) between the countries is attributable to prices set by vehicle manufacturers and not as a result of taxes. Moreover, the impact of the LCT on vehicle prices is marginal, given the higher UK VAT rates.

If the AAA or FCAI had extended their research to include the US and most member states in the EU, they would have found new car prices in Australia are considerably lower due to additional taxes such as the US Gas Guzzler Tax, or the reformed vehicle purchase taxes. These are differentiated on the basis of CO2 emissions, and have been introduced for the purpose of influencing car purchasing trends to fuel efficient vehicles. They support the international Global Fuel Economy Initiative that requires countries to improve fuel efficiency by at least 50% by 2050 relative to 2005 levels.

Tax reform to the LCT should also include GST and state government Stamp Duty. The AAA, FCAI and the Productivity Commission have not considered the international trends of reforming such taxes and charges on the basis of CO2 emissions, and increasing the country's fleet of fuel-efficient vehicles.The Conversation

Anna Mortimore is Lecturer, Griffith Business School at Griffith University.

This article was originally published on The Conversation. Read the original article.


Comments

    It's Australia. Absolutely anything that's slightly above the median accepted norm is charged out the ass.

    Regardless of any taxes we pay more for higher end models. First example I looked up - Audi A8. Australian price: $173,000 (only includes base vehicle price and dealer delivery, NO state stamp duty, NO rego, and NO LCT).
    UK price 59,580 pounds ON THE ROAD (i.e. all costs) = $110,008 at current exchange rate.
    Difference = $63,000 and that is on the road in UK compared with not on the road here.
    Forget AAA or FCAI reports or Uni lecturer that all have their own agendas, we have the internet. Look it up for yourself.

    Why doesn't the ATO provide details of what qualifies for fuel efficient vechical.

    Technically the Mercedes ML350 Blue Tec Diesel should be classed as a fuel efficient vechical. 7.3lt/100Km is way better then a Commodore or Falcon.

    Wasn't the LCT meant to protect local manufacturing?
    Since that will move out of Australia, shouldn't we get rid of the LCT?

    The LCT is indeed a rip off by government which is further compounded by the car manufacturer adding a hefty hefty "Australia Tax" on all their prices. This is particularly present among the German cars. They know the Aussies are dumb enough to buy them regardless so they happily add tens of thousands of dollars to the price tag.

    Just compare the prices of Porsches, BMWs and Mercs in USA vs Australia. If they can afford to sell the same car for less than half in the USA (even before taxes are counted) then they are laughing all the way to the bank here in Oz.

    I wouldn't be surprised if the LCT disappeared overnight, the German auto makers just increased their prices to lessen the drop and thus get an even bigger profit.

    Also look at the car parts themselves. Same think. 3x the price here thatn overseas.

    Honestly, this article really misses the issue by avoiding cars in the over $100000 price range where the disparity becomes clearer as others have mentioned.

    The following numbers representing US prices may or may not be drive away, but you get the idea.

    Porsche Cayman GTS US$53,595
    Porsche Cayman GTS AUD$180,098

    BMW M4 US$65,150
    BMW M4 AUD$184,244

    And then the upper end of town:

    Porsche Carrera US$85,295
    Porsche Carrera AUD$260,959

    Lamborghini Adventador US$400,495
    Lamborghini Aventador AUD$ $834,813

    I remember looking at a Mercedes-Benz SLS in an MB dealership in Amsterdam, 180,000 euros sticker price. Wonder how much they costed over here new...

    This will be an interesting list to follow if we can get the current figures for what this looks like. It's a given European cars will cost more here though for the pure additional expense of having the cars brought Down Under!

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