Where are we now?
There are numerous benefits associated with use of a motor car - essentially they relate to the value placed upon mobility and access. However, there are also many costs associated with the acquisition and use of a motor vehicle. Some are imposed by Governments, both directly and indirectly, and others are the result of factors such as depreciation, theft, market power in the use of technology for repair, and tolls on private motorways.
Governments impose a whole range of taxes and charges on motorists including petroleum excise, registration charges and stamp duty.
Petrol is one the most contentious issues for motorists. Visit our petrol prices page to find out more.
Petroleum Excise and Subsidies
The current taxation regime for fuels is complex, unwieldy, regressive and unfair. A Commonwealth excise of 38.143 cents applies to petrol and diesel. GST of 10 per cent is also applied to fuel.
At the end of December 2003, the Government announced reforms of the fuel excise system, most significant of which was the adoption of a banded system which will see excise rates applied to all transport fuels according to energy content and whether or not it can be classed as being "alternative". The banded excise system is outlined in the table below. Please note that the excise rate for petrol and diesel will remain at 38.143 cpl.
Banded Fuel Excise System
Source: Commonwealth of Australia, 2004, Securing Australia's Energy Future.
For fuels that will be subject to the excise for the first time, the system will be gradually phased in, as follows (as adjusted in March, 2004):
Fuel Excise Rates for Fuels Entering the New Excise System
Source: Commonwealth of Australia, 2004, Securing Australia's Energy Future
In 2006, the Government introduced a $2,000 rebate for motorists converting
their cars to LPG. This is on top of a subsidy already provided by the Western
Australia Government of $1,000. The Scheme will operate until 30 June 2014. The
Government’s package also includes a $1,000 rebate for motorists purchasing a
new LPG car. This part of the policy was originally scheduled to be implemented
from 1 July 2011.
The Commonwealth Government will
also provide a $37.6 million capital fund to support new biofuels production
capacity and measures to bolster confidence in the use of ethanol blended fuels
Estimated Components of the Price of Petrol at the Pump
(Cost used is Australian Capitals ULP average in 2004)
Source: AAA calculations; FUELtrac
Motor vehicle registration charges are levied by the State and Territory Governments. Charges and the basis for levying them (weight, engine capacity, number of cylinders) vary from State to State. Registration costs are generally in the range of $160-$350.
Stamp duty is imposed by State and Territory Governments on the transfer of ownership or purchase of a new or second-hand motor vehicle. Charges and the basis for levying them vary from State to State. Stamp duty is generally in the range of 2 to 6.5 per cent of the value of the vehicle. Stamp duty is a remnant of the 'old' tax system, and since stamp duty is imposed on the GST-inclusive price, it represents an inequitable 'tax on a tax'.
Each time the ownership of a car is transferred, stamp duty is payable and therefore this has a cumulative effect on price over the life of the vehicle.
Stamp duty is also applied to car insurance premiums and compulsory third party insurance at rates ranging from 5 to 11 per cent.
Compulsory Third Party Insurance
Compulsory third party insurance provides cover for injuries suffered by people involved in road crashes, except the driver at fault. Premiums, and the basis for levying them, vary from State to State but are generally in the range of $300 to $450.
Tolls are currently applied to some privately owned and constructed roads in New South Wales, Queensland and Victoria. Revenue from tolls was estimated to be $670.7 million in 2002-03, which is an increase of 42 per cent on the 2000-01 figure.
At the Commonwealth level, there are tariffs on imported vehicles which effectively raise the price of imported and domestically produced vehicles. The tariff on passenger vehicles is currently 10 per cent and this is scheduled to fall to 5 per cent in 2010.
Luxury Car Tax
There is a luxury car tax (LCT) of 25 percent which applies to the portion of a vehicle's value exceeding the LCT threshold, currently $57,009.
Despite the range of government costs facing motorists when they purchase a car, it has become much easier for people to afford a new car since the mid 1990s, because earnings growth has exceeded the movements in car prices and reductions in import tariffs have encouraged a more competitive market.
Cars have also improved in specifications (for example, advanced safety and computer technology, on-board diagnostics) and quality and thus represent much better value.
Car Affordability Indexes
December quarter 1984 = 100; average for calendar years; vehicle price indexes as ratio to average weekly earnings; AAIR = Australian Automotive Intelligence Report; Family 6 = lowest price Holden Commodore and Ford Falcon variants.
Source: Australian Automotive Intelligence Report (AAIR), Australian vehicle market performance, February 2005.
What Needs to be Done?
New, affordable, clean and safe cars are an absolute priority to ensure the existing ageing fleet (average age 10.3 years) is replaced. Reduced operating and capital costs should be the goal to bring about these changes which will benefit the environment, road safety and the general cost of motoring.
There is a need for a radical overhaul of the fuel taxation system.
The appropriate tax of fuel for revenue raising is:
10 per cent GST on all fuels (no exemptions);
no indexation (GST is an ad valorem tax); and
no on road/off road distinction.
Road users should also pay for the social cost of their road use through a road user charge:
An ideal road user charge would have two components - an access charge and a user charge:
the access charge would cover the cost of vehicle registration;
the user charge would have four components;
- A road wear charge levied according to a proxy for the pavement damage done;
- An environmental charge levied according to engine type and fuel type;
- A congestion charge collected directly according to road location, time of day and type of vehicle; and
- A charge to help fund the external cost of vehicle crashes.
In the interim period, State Governments should continue the initiative of setting registration charges on the basis of the environmental performance and safety of vehicles. Distortions in the import tariff lead to favourable treatment of heavier, less fuel efficient 4WD vehicles. Changes to the tariff or to registration charges to these vehicles could improve equity.
AAA supports the Government decision to lower passenger car tariffs to 5 per cent in 2010. However, as noted previously, an anomaly does remain in the system whereby the tariff on 4WDs is already - and has been for some time - at 5 per cent. This anomaly will be rectified by 2010.
Luxury Car Tax (LCT)
Since the LCT threshold has not kept pace with changes in car quality, the luxury tax applies at a much lower threshold than it would if car quality improvements were included. Given that luxury cars often introduce advanced safety and ITS technologies, the Government should consider removing the LCT altogether - possibly through a phasing-down approach similar to that in the United States - or at least increasing the threshold.
On Board Diagnostics (OBD)
Computerisation of modern vehicles with on-board diagnostics (OBD) have substantial benefits to motorists, provided that:
||Manufacturers provide the information required by clubs for road service
||Vehicle manufacturers make technical service data and equipment widely available (i.e. beyond their dealer network), at reasonable cost
||Standardised OBD format and interface is developed; data and equipment widely available (i.e. beyond their dealer network), at reasonable cost
||The data collected by the OBD equipment is owned by the vehicle owner and cannot be used without their consent; and
||A code of conduct is developed relating to privacy and ownership of OBD data.