Abolish The Luxury Car Tax

If Luxury Car Tax hit only the richest one per cent, we’d be OK with it. But it doesn’t. Ordinary car buyers find themselves paying LCT. Cars are the only new product in Australia, with a tax imposed on their alleged luxury. LCT is out of step with reality. It needs to go

Is a tax on luxury cars actually fair? And if it is, at what price should that tax kick in? How do you even define luxury? And, how come cars are the only items in Australia that get taxed on the basis of their purported luxury?

How Much is the Luxury Car Tax?

If you buy a $100,000 car in Australia, you’ll pay more that $7500 in Luxury Car Tax. That’s on top of about $9000 in GST and about $3000 in stamp duty. And about $1000 to register it. So, all up, the tax burden on that shiny new $100k car is more than 20 per cent of the cost. Do you reckon that’s fair? 

It’s pretty hard to feel sorry for the big end of town. They get more than enough perks, and, frankly, they can afford it. If you wake up tomorrow and you’re Kerry Packer’s long-lost playboy love-child, you might as well buy yourself a Rolls Royce Ghost (the poverty pack of Rollers). It’ll cost you $600,000 or $650,000 - if you have to ask... And if you do that, the luxury car tax on that Ghost will haunt you to the staggering tune of $136,000. That’s enough to buy a fairly nice car in its own right. So, let’s not cry ourselves to sleep over anyone who can afford a Rolls Royce.

Who Does Luxury Car Tax Affect?

But Luxury Car Tax doesn’t just affect the buyers of Rollers and SLS Benzes. It’s not just for Audi R8s, Lamborghinis, 911 Porsches and Ferraris. Luxury Car Tax actually slugs the buyers of Nissans, Jeeps, Volkswagens - and Toyotas. In fact, Toyota buyers pay more Luxury Car Tax than customers from any other brand - mainly thanks to Toyota’s hefty market share, and the Government’s insanely low Luxury Car Tax threshold. In total, something like 15 Toyotas are subject to Luxury Car Tax. It’s certainly not because Toyotas are inherently luxurious.

If Luxury Car Tax was just headhunting society’s uber-rich, nobody would really care. (Except of course the uber-rich.) Any world-dominating CEO polishing the leather in his S-Class with his bespoke Saville Row-clad arse can sob all he likes about the cost of everything, for all I care. But Luxury Car Tax kicks in at an absurdly low level: just under $62,000. And you pay 33 per cent on every dollar over that limit - the former Labour Government raised it to 33 per cent, up from 25, back in 2008. The revenue Luxury Car Tax generates is currently about half a billion dollars.

I don't know about you, but in my mind, $62k doesn’t exactly buy you a corner penthouse suite at luxury car central. You don’t even get into the car park for that, really. According to Google, which knows everything, luxury is actually defined as (quote): a state of great comfort or elegance, especially when involving great expense. That’s a reasonable definition. But a car for $62,000 - great comfort and elegance; great expense - surely we’re not quite there yet. If there’s a line in the sand marked ‘luxury’, you can’t even see it from $62 grand.

 An Unlikely Luxury 'Car'

A 200-Series Toyota LandCruiser GXL is a luxury car - at least it is, according to the Federal Government. It’s $91,000, drive away. You don’t get leather, or heated seats. It’s a truck with hair and makeup and a nice frock. Not exactly a limousine. Heads certainly don’t turn when you drive past in a GXL LandCruiser. Nobody says: Is that Leonardo DiCaprio? A Toyota Tarago Ultima is also - allegedly - a luxury car. I’m tipping Angelina Jolie doesn’t ride in one. So is a Nissan Pathfinder, and a Volkswagen Multivan. (Those luxury people movers…) Reasonably nice vehicles, but not for Robert Downey Jnr or Scarlet Johansson. Not exactly the four-wheeled encapsulation of Google’s ‘state of great elegance, especially involving great expense’. Not even close.

 

Why Only Cars?

Statistically, the average Aussie car is a nine-year-old Holden Commodore - and compared with that, I guess just about any new car is a luxury. But when you consider only new cars, your average new car is probably a $30,000 spend. That’ll get you into a nice Mazda3 or a Hyundai i30 SR. Something like that. If you double that spend, you’re at the official Luxury Car Tax threshold - but you’re hardly luxuriating, are you? If you use the same logic, the average wristwatch is probably something like a $200 Casio G-Shock. So why don’t we put a tax on luxury watches - say, 33 per cent on top of all watches costing more than $400. (I know: Because that would be absurd.) Your average smartphone is probably a $500 Samsung. How would you feel about paying a luxury phone tax on your 64Gb iPhone 5S? 

There’s no luxury tax on watches or handbags, or jewellry, or yachts. You can fill your house with Penfolds Grange, bathe in it if you like, just for the resvaretrol, without paying a cent in luxury tax. Antiques are also 100 per cent luxury tax-free. But if you need to buy yourself a LandCruiser GXL to tow the trailer with the bath full of Grange ready to rip, you’ll be stumping up almost $6000 in Luxury Car Tax for the privilege. It doesn’t seem equitable.

In fact, it’s outrageous that cars are singled out for a luxury tax. And the threshold where that Luxury Car Tax kicks in is a joke. We’re taxing Taragos based on their purported luxury, and not the buyers of Tiffany cufflinks, Hublot Big Bang watches, Jimmy Choo shoes, Burken handbags, and anything from Yves St Laurent. We’re doing it because the Australian motorist is a kind of golden goose. And those 24-Carat eggs just keep on coming.

 

The 911 Porsche, $100k Tax Proposition

Frankly, I have to dig very deep to whip up measurable sympathy for anyone who has almost $300,000 to spend on a car. But let’s say you get lucky and hit the big time. You work really hard, it pays off, and you’re successful.You’ve always wanted a Porsche 911 Carrera 4S. Who hasn’t? It’s $282,000 drive-away, here in Australia. But the exact same car in Great Britain - it’s even got the steering wheel on the same side - is $160,000. Australian dollars. 88,400 pounds Sterling. And that price includes the British Government’s 20 per cent value-added tax - the VAT. The exact same mid-range smokin’ hot Porsche is $120,000 cheaper in England.

The Tax burden on the Australian 911 buyer is extreme - almost $50 grand in luxury car tax, about $8000 in import duty, about $26,000 in GST and $13,000 in stamp duty. It’s nearly $100,000 in tax. Or you could just buy yourself a $60,000 car and dump the rest on luxury items that aren’t subject to a luxury tax, or stamp duty, and you’d boost your buying power by about $60,000. It’s a disincentive to buy a nice car. So if luxury tax is applied only to cars, it’s positively anti-competitive in the upmarket retail space.

The Dark Side of Luxury Car Tax

Luxury Car Tax systematically incentivises carmakers to strip equipment away from their cars to squeeze in under the LCT threshold. Some of that stripped stuff is life-saving safety equipment. If the Federal Government had even half an idea about vehicles, any luxury car tax would not kick in until $200,000. Great comfort or elegance; et cetera. Two-hundred grand is pretty much the sweet spot for real luxury. They could leave the threshold for business tax deductibility at $60-something-thousand for cars - that’s fair. But they absolutely must to drop the Luxury Car Tax rate - and start taxing luxury across the board - not just cars. And that’s only if we decide luxury is an appropriate commodity to tax. I thought the consumption-based GST was supposed to level the tax field here anyway.

They should scrap luxury tax altogether - there’s an idea. Or maybe drop all these BS taxes - like stamp duty and fuel excise - and impose a 20 per cent GST across the board - like they have in the UK. 

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