AAA Questions Luxury Car Tax


Australia’s peak motoring body, the Australian Automobile Association has seriously questioned the desirability of a Budget increase in Luxury Car Tax (LCT), as reported in today’s media.

AAA said it had a number of concerns about the tax itself and the reported increase:

  • the increased tax would impact on inclusion of vehicle safety features;
  • the tax appears at odds with the Rudd Government’s proposed review of the taxation system;
  • the move comes prior to the outcome of the Bracks’ Inquiry into the Australian Automotive Industry, which is still taking submissions; and
  • the increase will add to the already substantial costs of motoring.

 AAA’s Director of Research & Policy, John Metcalfe, said the increase of the LCT as a policy measure was not desirable in the interests of all Australian motorists.

“AAA has noted media reports today of the Government’s interest in increasing the luxury car tax on motor vehicles from 25% to 33% - on behalf of Australian motorists, we have some concerns about this for a number of reasons,” Mr Metcalfe said.

“Firstly, this LCT a tax on car safety – by setting a threshold price, manufacturers will work to keep vehicles under that price and this will mean important safety features such as Electronic Stability Control and side curtain air bags may not be included.

“Secondly, the LCT also helps local vehicle manufacturers, as cars that are above the proposed threshold are largely imported vehicles.  Australia’s vehicle manufacturing industry is one of the most highly assisted sectors of the Australian economy with an import tariff of 10% and now this increased LCT.  This is not just our view but also that of the Government’s own Productivity Commission in its most recent Trade and Assistance Review released in March this year.

“Third, it is also surprising to us that this leaked Budget announcement certainly pre-empts the Government’s own Bracks’ Inquiry into the Automotive Industry, which is still taking submissions.

“The LCT is a remnant of the old taxation system, when a higher rate of wholesale sales tax was applied to a range of luxury items such as jewellery, furs, cameras, televisions and cars – when the GST was introduced, the luxury tax was abolished on those other items, except cars. 

“We continue to have a tax on a tax, with both the increased LCT and the GST to apply to these vehicles.”


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