Victoria’s luxury car tax plan slammed as ‘stupidity’

Ross Greenwood speaks to The Federal Chamber of Automotive Industry CEO Tony Weber after the car industry has slammed the Victorian government’s proposed luxury car tax.

Ross Greenwood: By putting in bits and pieces around the place. I do want to start and have a bit of a chat about the Victorian budget today. As I say, the public service, it’s going to be basically foreign investors. It’s going to be gold miners. Then it’s going to be people who buy luxury vehicles or vehicles worth more than $100,000. Let’s go to Tony Webber who’s the chief executive of the Federal Chamber of Automotive Industry. Tony, many thanks for your time as always.

It’s not the first government that’s proposed this. The other one was also a cash strapped Queensland Government that did it. The two things that go together are big cuts in stamp duty on property purchases and Labor governments. As a result, people who buy luxury cars or expensive cars get whacked with an extra tax.

Interview with: Tony Weber, CEO, Federal Chamber of Automotive Industry

Tony Weber: Exactly. I also think stupidity is the other element that goes with it because it’s a tax on safety and environmental technologies which ultimately affects everyone who drives or uses the roads.

Ross Greenwood: Okay. Let’s go to the rules here. Right now, the federal government has a luxury car tax. As you’re aware, the limit right now in 2018/2019 up until June 30th this year is $66,331 for all vehicles. If you happen to buy a fuel efficient vehicle, it’s $75,526. Omitted from this are cars such as trade vehicles, which is one of the reasons why the sale of Utes has taken off in this country because a lot of those trade vehicles, which can be more expensive, avoid the federal luxury car tax. Will they avoid also the Victorian tax as well?

Tony Weber: Well I actually had not cross the detail of that level but tax are broadband of vehicles. The unfortunate thing is that we are taking the best technology from around the world put in cars and it has a flow on effect right throughout the market. That pressure for the flow and effect from the manufacturers is not there if there is a tax on safety equipment, for example. Then that safety equipment stopped in the luxury cars, it won’t float through to the rest of the fleet as it typically does at the moment in one model cycle, Ross.

Ross Greenwood: It will delay the government. Of course, low emission vehicles are exempted from the tax. Also motor homes oddly, primary producers. If a farmer buys something, well obviously they’re exempt. The other one I find curious is because I reckon this is the loophole a lot of dealers might use to get around it. Dealer demonstrators would be exempt. Now, I find that rather interesting because if you put 2,000 cars on the clock and call in a demonstrator, I would have thought a lot of people would be highly attracted to buy such a vehicle under those circumstances if they didn’t have to pay that additional luxury car tax in Victoria.

Tony Weber: Well that seems very attractive and that is exactly the question that was raised in my mind today. We’re seeking greater clarity from the Victorian government about this. I understand that it maybe the case that if you buy the cars, used vehicle and it breaks 10,0000 threshold even as a used vehicle, you pay the luxury car tax. You might get away from that example.

Ross Greenwood: Okay. The other issue also is that the car industry is not doing brilliantly at the moment. We know that really goes along with falling home sales, so that the national car sales are down about 8%. In Victoria though, they’ve fallen even harder. They’re down 10% year-on-year. The fact of the matter is that this is not going to help more cars to be sold in Victoria would have thought.

Tony Weber: Exactly right. I think as you say, the market Victoria’s down by 10% over the year and you’re putting a luxury tax on top of that. It just makes it less attractive to go out and buy vehicles. The timing is really quite poor.

Ross Greenwood: Then you go to New South Wales because this is the thing that is of some interest and concern in the lead up to the New South Wales election, that was just going back a couple of months late but they’re also suggested a 7% tax on vehicles worth $100,000. You do get the sense that it is something that Labor Party politics wants to introduce. Going back some time ago, it was Chris Bowen who then was the treasurer who got into all sorts of strife when he proposed a significant increase in the luxury car tax right through Australia.

This is a fundamental problem. He also tried to basically change the rules in regards to no valid leasing. There are big issues in regards to labor trying to really get the motor industry and those people who were driving cars.

Tony Weber: It’s a real concern that the price of cars should be as low as possible in this country because it really goes to the environmental performance of the vehicle and the safety of the vehicle. The cheaper we can get people into cars, the better we are as a community I would have thought. That’s obviously not the views of all politicians and bureaucrats around the country, which is very sad I think.

Ross Greenwood: We reported on this program earlier this year, work that has been done by car advice. Effectively, they indicated that Toyota customers say for example, pay more on a federal basis in luxury car tax than buyers of most prestige brands. Now that’s because despite the fact that they might be Toyotas, they still have cars that go beyond the luxury car tax thresholds. As a result of there being more of those cars, it ends up in total, they end up paying more in luxury car tax which it seems almost bizarre to people who are looking at this because number one there are ways in which people can get around it if they buy these Utes or other types of vehicles, low emission vehicles.

The second part about this also is that those people who buy the most popular brands end up finding themselves on the wrong-end of the luxury car tax.

Tony Weber: Well, that’s right. There certainly there have been years where Toyota, I should say Toyota buyers are the largest payers in the luxury car tax at the federal level in this country. That does seem very peculiar. It’s because the threshold for the federal luxury car tax is just simply too low and it has been in place fundamentally since the 1980s. The indexation of that has only put it up marginally because we don’t use the normal CPI index. We have a special vehicle CPI index. As you know, car prices have produced over the last 20 years in real terms so therefore it keeps the threshold very low in Australia. It’s very bizarre.

Ross Greenwood: Okay. I was going to say final one for you Tony, because you said it was created in the 1980s the Federal luxury car tax now creeping in at a state level. Why was it put in place? Just remind people in the very first place. Why did they put in a luxury car tax? What was the rationale and the reasoning for it?

Tony Weber: To protect the local car manufacturing industry. It was to protect LTD and car prices made by Holden Ford.

Ross Greenwood: How many of those do we manufacture in Australia today?

Tony Weber: Zero. Unfortunately, we make no cars in Australia today.

Ross Greenwood: What are we protecting then by having a luxury car tax today?

Tony Weber: We’re protecting state revenue basis. Nothing else. It’s a very bizarre way to do it. In fact, Ken Henry looked at this when he did his complex premises review of the taxation system. Ken Henry’s outcome was that the five basic principles of taxation, the luxury car tax met none of them.

Ross Greenwood: That should be the answer for state governments. It is poor policy, poorly implemented and it’s simply a cash grab. There is no doubt. Tony Webber the chief executive of the Federal Chamber of Automotive Industry. Tony, I appreciate your time on the program this evening.

Tony Weber: Pleasure, Ross.

Image source: 2GB

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