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Luxury car tax
May 11, 2008 | 14 Comments | Joshua Gans
If you want to buy a car and pay more than $57,000 for it, the government’s luxury car tax is set to rise next week from 25 to 30%. Malcolm Turnbull says that this will raise the price of all cars. I don’t think so. When it comes down to it, most luxury cars are imported. Indeed, because of the exchange rate rise, there surely is a ton of pressure downward on the prices of those cars. So car buyers may not even notice this (except if they anticipated a ‘but for the tax increase’ price). But in any case, it shouldn’t effect the price of other cars and only the differential price between luxury and non-luxury vehicles. Competition will keep the non-luxury car prices down.
Indeed, even in the luxury car market, dealers will face a dilemma. With the Aussie dollar high, they might be more tempted to price the lower end luxury cars below the threshold. In this case, more cars might fall out of the taxed bracket.
Comments
14 Responses to “Luxury car tax”
Put aside your presumption that dealers will absorb the tax hike (I don’t think they will, at least not in full) and Turnbull is right. Basic economics: if the replacement cost of a new car is higher, the demand shift towards used cars will rise, driving up prices. Even demand aside, unless there is a significant shift in price depreciation, the high starting price should follow through to the same cars when they hit the after market, and even existing cars in the same segment as the cost of new increases.
One last point: since when is $57000 a luxury vehicle? typical class based bs from Labor when regional and country people rely on 4WD’s with many falling above this price point (priced a LandCruiser lately?). The ALP talks Mercs and BMW’s, but the reality is there’s a lot of cars above this price point now.
I didn’t presume that dealers would absorb the tax hike. Indeed, they will pass it fully through as the supply of luxury cars is price elastic.
My point is that non-luxury prices are determined the same way. So even if the demand is increased for them, the equilibrium price is unlikely to be changed.
I would’ve liked to see it based more on fuel economy and vehicle weight: vehicles using more than 10L/100km, or over 2T have an extra tax associated. This would include most luxury cars – but I don’t see why someone moving from a heavy, inefficient non-luxury vehicle to a lighter, efficient luxury vehicle should be penalised.
4WD’s have a lower tariff of 5% compared to 10% for other imported vehicles, so rest assured soccer mums and regional Australia will not be unfairly burdened with this tax increase. (http://www.abc.net.au/lateline/content/2007/s2108538.htm)
Anyone that purchases a brand new $57,000 vehicle, which is considerably more than the price of a standard Commodore, is hardly in a precarious financial position.
As Joshua correctly mentions, the rising Australian dollar will probably more than offset this tax increase.
The luxury car tax, as I understand it, applies only to the portion of the vehicle price over the threshold.
That said, it’s a stunt. We don’t put an extra tax on diamond-studded Rolexes, private jets, Roederer Cristal champagne, or bespoke Giant TCR 0 bicycles for that matter.
I am in the industry (“Luxury Cars”) as a salesperson and I disagree with the increase, infact disagree with LCT (or at least it’s structure) as a whole.
For one, I think its very wrong to consider all vehicles over $57,123 to be a luxury purchase.
Most “Luxury” cars like Audis, BMWs, Mercedes, VW etc. are far safer and more fuel efficient than any Australian made counter part. So a great deal of people will stretch budgets from a Ford or Holden to get into a smaller, slower european car that is more stable on the road, uses a lot less fuel, (the efficiency figures are stagering in some marques), is more environmentaly friendly, needs to be serviced half or a third as often and more often than not is far more reliable over its lifetime.
You would be amazed how cheaply some-one can get into a $70,000 prestige car when you take some of the above points and resale value into consideration. In same cases it costs not much more or no more than a $40k-$50k cars over a 4-5 year period.
I think think at the very least the luxury car tax should be lifted to $70K or $80K because once you start to get up to this price and over $100K the purchase is more of a luxuy one I think.
As mentioned by someone else in another forum (so not 100% certain if it is correct for all items or not) there is no “Luxury Tax” on true luxury items like designer handbags, helicopters, boats etc.
This is probably a desperate attemp to help save the Australian Motor Industry, and it needs more help than lifting a tax that is basically some pen pushers telling the people of Australia what they should and shouldn’t buy and slapping them with a disciminatory tax if they disagree.
In the end though, It wont effect sales because of all the points I have mentioned. So be it.
Do any countries implement luxury-taxes on goods other than cars? It seems to me that if you’re going to tax anything, then it’s better to tax highly discretionary purchases where the price paid reflects the owner’s desire for prestige or elitism as anything. If income or company taxes could be significantly lowered by virtue of luxury taxes on a range of goods, would that not be a good thing?
What is this Sin Tax trying to address? Expensive cars? Are they the biggest sin around, or perhaps the easiest – it’s just an adjustment of the rates, isn’t it?
Perhaps an alternative would be to raise the GST rate and lower income taxes (to negative if appropriate). That way you’d capture more spending by rich folks, and offset the taxation effect against the poor.
We are already paying ridiculous prices for our vehicles here in Australia when compared to countries such as Japan, USA and even the UK.For example, in America a brand new Porsche 997 Carerra S costs approx $90,000 AUD plus onroads. That same car here is well over $200,000 and is now set to increase even further.Its a tax system that pampers to the lowest common denominator. A rip off tax designed to protect our local car industry from having to compete in a market that they can not compete in.
$57K-Cars are luxury??
I am only a kraut (german) an I drive a BMW 530d touring here in Germany. This car costst round about $120K in Germany (included 19%VAT). Okay it is good powered and good equipped. But this car is not luxury for a five-persons-houshold (three little children).
i drive more than 50 KM to my office and back, have a lot of business travels (sometimes 800 km a day) so, this car is not a luxury car.
The questions is, what i am doing with the car?
If i have the car only to drive a around the block to catch the chicks, so a car which costst $10K is a luxury car!!
We have two disabled children, one of which needs a wheelchair. There are only 3 or 4 cars available to buy that can be converted to hold a wheelchair – and guess what? They cost over 57.000. So not only are we forced to buy an expensive car plus fork out an additional 26,000 to convert it, now we get hit with an extra tax.
Fair?
From my understanding Heike, cars which are specially fitted out for transporting disabled people seated in wheelchairs are exempt from the tax, as well as emergency vehicles, private sellers, motor homes, or over 2 years old.
I agree that this tax is ridiculous.. i’m actually in the market of buying a $160k car, to get it onroad costs a total of $205k.
i work hard to pay tax, save up money and you get taxed on interest made, and when you finally spend your hard earned and saved money.. guess what? you get taxed.. thanks Australia.
Paul Keating tried this style of Robin Hood taxation during the previous ALP administration-clevely, the volume of cars dropped, so this “rich bastards” were effected (NOT)..and did the Government make any more money? (Kevin 07 question)….NO..and the tax was ultimately re-adjusted back…sales increased, so did tax income….this is a snide ‘get even tax’..but the ALP are legend at not getting the business equation right..no idea of how business works…just keep adding tax tax tax…and they Government gets more cash…dumb…and we will have increased umemployment soon…less tax,more dole payments…etc etc…John Howard and Peter Costello may have been dorks, but they could manage money and generally we WERE better off…why not ask the Kev 07 and Wayne to put a ceiling on fuel tax?…this element of the economy will ultimately impact on all of us.
[...] be slight and indirect compared to the benefits gained.Luxury taxes aren’t used much in the US compared to other nations, but maybe it’s time we reconsider – especially given our excesses. But the idea is not [...]