Luxury Car Tax Faces Axe in Trade Negotiations with Europe
The Australian government is considering scrapping the Luxury Car Tax (LCT) as part of trade negotiations with Europe, potentially making luxury vehicles like Mercedes-Benz and BMW more affordable for local consumers. The LCT, introduced in 2001 to protect local vehicle manufacturing, applies to vehicles with a dutiable value above $80,567 (or $91,387 for fuel-efficient models), with a tax rate of 33% on every dollar above these thresholds.
The tax affects not only premium brands like BMW, Audi, and Mercedes-Benz but also mainstream models such as the Toyota Prado, Hyundai Palisade, and Nissan Patrol, as their prices have risen over the years. According to reports, a source close to Prime Minister Anthony Albanese suggested that the government is willing to abolish the LCT in exchange for better access for Australian agricultural exports to Europe.
The LCT generates approximately $1.2 billion in revenue annually, with a significant portion attributed to mainstream models rather than luxury brands. If scrapped, luxury car prices are expected to decrease. However, the upcoming enforcement of the New Vehicle Efficiency Standard (NVES) could complicate this, as manufacturers may pass on potential fines to consumers through increased prices.
The NVES, set to be enforced from July 1, targets carbon dioxide emissions for vehicles sold and requires manufacturers to pay penalties if they exceed these targets. While credits can be earned for electric and low-emission vehicle sales, the overall impact on pricing remains a concern. The abolition of LCT could help offset potential price increases due to NVES fines.
As Australia navigates global tariff turmoil and seeks to strengthen ties with Europe, the fate of the LCT remains uncertain. The European Union’s automotive market is currently challenged by Chinese-made products, particularly in the electric vehicle space, leading to dwindling sales of European-made electric cars and facility closures by major manufacturers like Volkswagen and Audi.
