Mercedes-Benz Australia believes that the current framework for a free-trade agreement with the European Union (EU) will finally see the disbanding of the 33 per cent Luxury Car Tax (LCT), starting in 2019.
Speaking to CarAdvice in Germany, brand’s Australian head of communication, David McCarthy, said there is a general belief that it's just a matter of time before the tax is nixed.
“I feel confident, 2019-2020 there won’t be an LCT and that would have been an 11 year battle,” McCarthy said.
“We had a three-year battle over parallel imports, LCT will be a casualty of EU free trade agreements and anyone that tells you otherwise is believing in alternative facts.”
As for how that will work and how it will be phased out? That remains to be seen.
“How the government does it, how they phase it in, that’s the challenge, but it will go just as ultimate import duty will go as well.”
According to McCarthy, LCT is doomed regardless of who wins the next federal election, as both parties are keen to create a free trade agreement with EU nations, which have lobbied for the removal of the LCT for over a decade.
“Both of the major parties are committed to an EU free trade agreement in the framework that has been discussed, there is always a bit of finessing around some of it, but they are both parties that support low trade barriers and free trade.
“It’s [LCT] currently 33 per cent, my personal view is that you would want to implement it over a three-year period – 33 per cent, 22 per cent, 11 per cent, zero. Otherwise you are going to have a lot of dislocation in the market. No-one is going to shed a tear over the OEMs suffering but the government is potentially going to lose a lot of revenue.”
McCarthy, who is also involved in the workings of the Federal Chamber of Automotive Industries (FCAI), believes the Government will see the removal of the LCT as an opportunity for additional revenue streams, generated by the EU free-trade agreement.
“Their interest is for it to be a smooth gradual transition, no free trade agreement implements all its parts from day one, it’s staggered, so the economy can adjust and the suppliers can adjust. The challenge of working with the removal of the LCT will be a great one.
“In some of these things you have to make an assumption about common-sense, that the government will make a decision but they will be advised by treasury ultimately, and treasury will go ‘if we do this, it will fall off a cliff.’
"They know one of the big factors on the parallel import decision was the ability for that to have a very negative effect on employment and skills training and the network, so they understood that, they did their research they spoke to the industry. They will do the same with this.
"Treasury will make an assessment based on ‘you don’t want huge blunt shocks to the economy’. The automotive sector is a big sector, big employer, a big contributor to tax, you don’t want to dislocate that, governments want more revenue, not less.
"They are always prepared to trade off as they have in other free trade agreements, a reduction in revenue in some areas with an increase in economic activity in others, because you know then that you will generate more employment, more commercial activity, there is more income tax, more company tax, more GST, so they make that assessment, I am not worried that it will go the wrong way.”
Mercedes-Benz, along with other European manufacturers, has for years lobbied the EU to fight against the LCT, labelling it “a false tariff”.
“The EU arrived in that position a long time ago, and all the EU manufactures have lobbied very hard in the EU to say ‘our cars are the ones that are most affected. [If] you want to have a free trade with Australia, it has got to go’. Government ministers have acknowledged it, they may not like it, but they know that it has got to go, if you want a free trade agreement with EU it has to go.”
How and when the Luxury Car Tax will being to unwind is still unclear, however if it does begin reducing by 2019, it will see the price of high end vehicles reduced substantially. The changes will have the most impact on vehicles costing more than $70,000.