Vehicle imports tariffs were introduced to protect Australia’s car manufacturing industry. That industry has now died out – yet the 5 per cent tariff on imported vehicles lingers in an irrational and damaging afterlife.

Tariffs and taxes will add $5 billion to the price tag of new cars sold over the next four years.

This is not just an unfair impost on Australian motorists – it is also hindering the transition to a safer, more fuel-efficient and more environmentally friendly national car fleet. And it is even failing to deliver a net economic benefit to government.

Driving up vehicle costs makes it harder for motorists to upgrade their vehicles. Australia’s passenger car fleet is old compared to other developed countries. The average Australian car is about 10 years old (9.8 years for passenger vehicles and 10.5 years for light commercial vehicles). Average vehicle ages in Western Europe countries range between 7.3 years (German’s light commercial vehicles) and 9 years (France’s passenger cars).

Australian politicians usually decry other countries’ protectionist policies in and extol the benefits of international trade.

Since the 1980s, Australia has benefitted enormously from reducing protectionism and opening our markets to free trade. This has been an era of almost unbroken prosperity, and today we remain one of the world’s richest countries despite global economic turmoil.

Trade Minister Steve Ciobo recently said: “Any time you increase tariffs or put in place barriers, all you do is further impoverish people. There is no prosperity that flows from putting up trade walls or higher taxes on traded goods. Typically, the more tariffs a country has, the bigger the trade deficit, a country has.”[1]

The government’s advocacy of free trade is not just nice theory and pretty rhetoric; it is also smart economics. But the government is not walking the talk.

As behavioural economist Steven D. Levitt wrote: “Don’t listen to what people say; watch what they do.”[2]

Despite making the case for free trade, the government hypocritically continues to impose tariffs that were designed to protect a now-extinct industry.

Removing the 5 per cent tariff would make the Ford Fiesta, Suzuki Swift and VW Polo about $700 cheaper, while the Hyundai Tucson (Australia’s second-highest selling SUV), would be about $1,200 cheaper.

There is no doubt that the tariff leads to unnecessarily high vehicle costs.

This is retarding the fleet renewal needed to improve road safety.

Older cars are less safe. Vehicles built before 2000 account for just 20 per cent of Australia’s national fleet, but they are involved in 33 per cent of fatalities. Updating the national fleet will help make safety technologies such as ‘lane keep assist’ and ‘autonomous emergency braking’ commonplace – preventing trauma and saving lives.

Removing the tariff would also reduce emissions and deliver financial savings to government that far outweigh the revenue raised by the tariff.

Recent AAA research found reducing the average age of Australia’s vehicle fleet by one year would:

• reduce road crashes by 5.4%;
• save more than 1,300 lives over the next 20 years;
• deliver road trauma and emission reduction benefits worth $19.7 billion over 20 years; and
• deliver $3.3 billion in direct savings to government over the same period.

The 5 per cent import levy should have died a natural death when the local car industry expired. It’s time to kill off this zombie tariff and breathe new life into Australia’s vehicle fleet.

[1] Transcript: http://trademinister.gov.au/transcripts/Pages/2018/sc_tr_180304.aspx?w=tb1CaGpkPX%2FlS0K%2Bg9ZKEg%3D%3D

[2] Author of Freakonomics in Think Like a Freak.