Australia Edges Closer to Abolishing Luxury Car Tax in EU Trade Deal
As Australia finalizes a trade deal with the European Union, the contentious Luxury Car Tax (LCT) is likely to be abolished. Introduced in 2000 to protect Australia’s local car manufacturing industry, the tax has been criticized for making European luxury cars more expensive in Australia.
The LCT currently applies to vehicles priced above $91,387 for fuel-efficient vehicles and $80,567 for others in 2024-25, adding a 33% tax on the portion of the vehicle’s price above the threshold. With Australia’s last car rolling off the production line in 2017, many argue the tax has outlived its purpose. The government, however, is reluctant to forgo the $1.2 billion in annual revenue it generates.
The European Union has long viewed the LCT as a trade barrier and has pushed for its removal in free trade agreement negotiations. The newly re-elected Albanese government has signaled openness to phasing it out, potentially unlocking favorable terms for exporters in agriculture, mining, and services.
For Australian consumers, the abolition of the LCT could mean lower car prices, particularly for prestige European brands like Audi, Aston Martin, and Mercedes-Benz. However, the tax also affects more ‘democratic’ vehicles like Toyota Landcruisers and higher-end Hyundai and Kia people movers. A $120,000 car, for instance, could see a price cut of over $10,000 if the tax were fully abolished.
While removing the LCT should theoretically reduce retail prices, whether those savings would be passed on to consumers is uncertain. Car dealers may absorb some benefits as additional profit margin, and manufacturers might raise base prices slightly. The LCT generates over $1 billion annually in government revenue, so replacing that income could involve tax reforms or spending cuts elsewhere.
Domestic automotive retailers and service providers worry that cheaper imports could impact margins and consumer expectations. While the abolition of the LCT could make luxury cars more affordable and align Australia with global market practices, the real impact will depend on how the industry adjusts and how both government and business respond.
