April 03, 2017

Horse 2253 - It's Time To End The Luxury Car Tax

Dear Australia, we need to talk.

In this country we have a bunch of taxes for a whole bunch of things. When Australia adopted the Goods And Services Tax in 2000, a whole bunch of taxes were eliminated and consolidated into the new tax system but there were a few things which continued on as uselessly as someone's appendix. One of these was the Wine Equalisation Tax which is amusingly called WET which is a 12% extra impost on top of the GST, which was designed to make sure that wines and spirits were continued to be taxed at 22%. The other major tax which continues to hang on uselessly is the Luxury Car Tax, or LCT, which places an impost of 33% on new cars which are sold for more than $64,132. I think that the LCT is idiotic and needs to be lanced immediately like a cancerous tumor.

As far as I can tell, the LCT was originally invented with the intent of making the top end of the car market a little bit more expensive, so that people would be attracted to buy the luxury cars being built by Holden and Ford. At the time of its introduction, there were four major car manufacturers in this country; being General Motors, Ford, Mitsubishi and Toyota. Mitsubishi closed its doors in 2008, the last Ford rolled off the production line in 2015, the last Holden will leave the factory on October 20 this year and the last Toyota, which will also be the very last car built by a major manufacturer in Australia will roll out on October 31. With no motor industry left in this country to speak of except for very small specialist bespoke sports car builders, the whole point of the LCT disappears. What is the point of a tax which is designed to protect local manufacturing when there is no local manufacturing?

If there is no industry left, which the tax is supposed to protect, then the LCT has two effects. Firstly, it is purely a tax grab with no net benefit to consumers whatsoever. Secondly, by artificially raising the price of new motor cars, it's actually helping to distort the rest of the market. New cars at the top end are needlessly expensive, which pulls the price of cars and trucks such as the Ford Ranger, Holden Colorado and Toyota Hilux, upwards; with the result that these things are ridiculously priced for what they are, and because the whole market for new cars is inflated, the price of used cars in Australia is among the most expensive in the world. As it is we will already have a captured market where the car sellers are price makers and so the continued existence of the LCT only really serves them.

If I lay aside my personal tribalism, where deep down my heart beats blue and I'd still like to be driving a Henry, as far as the market is concerned, the only reason that we don't see more BMWs, Audis and Mercedes-Benz on the road is because of the LCT. Now I don't think that they produce a markedly better quality of car for a second but I still don't see why people who want them should be paying a premium in taxation when there isn't a good reason for them to do so any more. This isn't like a sin tax on tobacco and alcohol, where the reason for imposing a tax is to partially recover the additional costs placed on the health care system because the real difference of costs placed on infrastructure and the environment between a BMW 3-series and a Kia Optima, are nil. In terms of the actual function of moving people around the place, the entire motor industry is mostly entirely fungible; it matters diddly-squat difference in real terms of what the badge on the front of your metal box happens to be, and all differences are down to fashion and function.
I personally wouldn't ever buy a Mercedes-Benz, BMW or an Audi, because I think that those cars help to identify the driver as an arrogant prig (and my biases are confirmed by watching traffic on my way to work every day) but I still don't see why people who choose to make that fashion choice should be marked for a special tax in future. It doesn't happen in other markets for consumer durable goods.

I think that with the death of the Australian motor manufacturing industry, which by the way borders on treasonous and I look upon the parliament with scorn, disdain and a very hard stare, the Luxury Car Tax also needs to die. I don't know who in the world benefits from it any more.

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