Mercedes-Benz Australia has spoken out on the government's persistence with its 33 per cent Luxury Car Tax (LCT), calling it the "ludicrous car tax".
The comments come from David McCarthy, Mercedes-Benz Australia's senior manager of public relations, product and corporate communications, as the 2016 Mercedes-AMG A45 becomes the latest model to hit the LCT threshold.
The 2016 Mercedes-AMG A45's fuel economy has increased from 6.9L/100km to 7.3L/100km following a power upgrade to 280kW. As a result, the $77,900 vehicle now attracts a 33 per cent LCT on amounts above $63,184 — where previously it was exempt, due to consuming less than 7.0L/100km and costing less than the efficient vehicle threshold of $75,535.
"We were lucky that we were able to sell the A45 for a long time just below the [7.0L/100km] threshold. What I would say, is that the fuel efficient threshold hasn't moved. I don't know which rare marsupial and rock they used to calculate it. It hasn't moved. I think that's interesting. Perhaps it's because they realise, well, hey, this is influencing buying behaviour but we're not getting as much tax," he said.
"Ideally, we would have liked to have kept it below at the end of the day. We don't set a price just to get into that bracket... if you end up there once you've done your calculations. Having said that, the overwhelming majority of cars we sell don't attract LCT. That's a big change from a few years ago.
"LCT, ultimately, I believe, will disappear. It will disappear once Australia starts sitting down and seriously talking to the EU about a free trade agreement. Particularly the Germans, surprisingly, or not surprisingly, are absolutely of the view that the LCT is a false tax."
McCarthy said that the Luxury Car Tax could be limiting further investment from European Union countries, by adding inflated costs to vehicles imported from Europe.
"If you want a free trade agreement with the EU, don't discount the fact — English vehicle manufacturing too, and Italian — a lot of those cars are LCT affected. They're seeing the opportunity to sell more cars, but at the end of the day they want a free market. So the EU and member states of the EU are definitely of a view about the LCT. It's inevitable. [Government would have to] phase it out over time, otherwise you're going to have a buyer's strike."
"That's the problem with government. When the current government was in opposition, they opposed the increase from 25 to 33 per cent. The current opposition opposed the LCT but then when they were in government they supported it. There's not a cigarette paper between them, but they're both inconsistent. Every review that's been done has said it distorts the market and I make the point that, if the government — of any colour — believes there should be a luxury tax, well, why don't you put it on other items."
Interestingly, it's only cars that attract a tax when it comes to luxury goods. One can easily spend hundreds of thousands, or even millions, on other luxury items without attracting any more than nominal taxes.
"There was recently a discussion about — I think the Labour party said — it was an idea that was floated by treasury or someone, that house sales over $2mil, $5mil or whatever, should be taxed. But then, no, no, you can't do that. So how do you justify having a 33 per cent tax on a $70,000 car, yet someone that buys a private jet, yachts, a $25,000 hand bag, they only pay GST. So let's stop calling it a luxury car tax and let's call it a ludicrous car tax," he said.
"Because it's not a luxury car tax — if you believed in a luxury tax, you'd have a luxury tax. The simple fact is the government doesn't believe in a luxury tax, whether it's political or 'real politics' as it's called. You'd never be able to sell it."
"We're stuck with the situation where, yes, they earn $500mil a year (or thereabouts) from it — that amount hasn't changed. But, increasingly, it's being paid by customers of vehicles that...being as charitable as I could...are not buying luxury cars. It's not a luxury car tax, it's a ludicrous car tax."
Do you think there's still room in the market for a Luxury Car Tax? Should it be abolished?