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LCT uncertainty to linger on

Lap of luxury: Audi was one of the few luxury brands to be up in August.

Controversial luxury car tax hike won’t be decided until Monday - at the earliest

9 Sep 2008

THE future of the federal government’s proposed eight per cent luxury car tax (LCT) increase could finally be decided next Monday (September 15) during parliament’s next sitting day - unless it is defeated and reintroduced with amendments at a later date.

In the meantime, the Australian Tax Office (ATO) has advised the automotive industry to continue to collect LCT at the higher 33 per cent rate (up from the previous 25 per cent, which applies to the amount by which a vehicle’s sales price exceeds $57,180) that the Rudd government announced in its May budget for vehicles delivered from July 1.

In a complicated arrangement, the government must receive permission from the senate to revive its “Tax Laws Amendment (Luxury Car Tax) Bill and related Bills”, which was defeated in the senate on Thursday (September 4), when Family First senator Steve Fielding sided with the Coalition to defeat it at its second reading stage.

If the senate approves its reintroduction, the LCT bill would again be read a second time in parliament on Monday, before being debated and put to a vote. If blocked again, it is understood the bill could not be revived without amendments.

The latter could include the deal struck between the Australian Greens and independent senator Nick Xenophon, which sought to exempt vehicles priced under $75,000 with fuel consumption of less than 7.0L/100km. This was rejected by senator Fielding, who called for farmers and tourism operators to be exempt from the tax increase.

Senator Fielding, who did not attempt to amend the bill and whose proposal was met with government claims of “compliance nightmares”, was accused by the Greens of inexperience for voting down the LCT bill without negotiating concessions.

Greens senator Bob Brown said senator Fielding could have voted for the bill and then helped send it to a senate committee to obtain concessions. “Instead of that, he said it’s all or nothing, I'll take nothing,” said senator Brown.

“You can't rip $500 million out of the treasury which could go to helping families right across the board and say you're a defender of family interests. It showed inexperience.” The federal government last week said it would not give up on its LCT bill, which it said would generate an extra $555 million over four years, but it is not known which way the Greens and the two independent senators, who collectively hold the balance of power in the senate, will vote on Monday.

80 center image Left: Greens senator Bob Brown, senior manager of corporate communications at Mercedes-Benz Australia/Pacific, David McCarthy and FCAI chief executive Andrew McKellar.

“The government is not giving up the fight to defend this budget,” the government’s leader in the senate, Chris Evans, told the senate last week. “We’re not giving up the fight to have the luxury car tax bill carried by the parliament.

“Next sitting week we will attempt again to get the Liberals to become responsible,” said senator Evans, referring to the bill’s defeat before any detailed debate and before senators could move amendments.

“Unfortunately that knocks a half a billion hole in the government's surplus,” he said.

Federal treasurer Wayne Sawn reiterated senator Evans, saying: “The government is determined to stand up for working families against the Liberals’ reckless economic vandalism and will reintroduce this luxury car tax bill in its current form as soon as possible”.

Prime minister Kevin Rudd said in parliament last week that the Liberal party had more concern for luxury car buyers than “working families” because the increased LCT revenue would have funding more public services.

“They, the Liberal party, stand for cheaper Porsches. That is their message: cheaper Porsches, cheaper Ferraris and cheaper Rolls-Royces,” he said.

However, Mercedes-Benz has calculated that, based on the 20 per cent sales reduction it has experienced since July, government revenue from the LCT, GST and import duty charges on its vehicles alone will be reduced by $218 million over four years.

Combined with lower estimates from volume-selling luxury brands BMW, Lexus and Audi, plus those of at least 14 other luxury brands, some industry observers maintain the government will be worse off if the LCT bill is introduced.

According to the Federal Chamber of Automotive Industries (FCAI), sales of vehicles priced above the LCT threshold were down 19.3 per cent in August, in line with the July downturn that followed a significant sales spike in June, when many luxury car buyers appeared to pull forward their purchases.

“The government says it has a $555 million hole in its budget, but they are going to get that anyway if sales continue the way they are,” the senior manager of corporate communications at Mercedes-Benz Australia/Pacific, David McCarthy, told GoAuto.

“They are trying to protect the revenue. What we are trying to do is stop this ‘adjustment’ in the market, which is a direct result of the luxury car tax uncertainty. Obviously, interest rates have also been a factor, but clearly people object to this.” One of its most vocal opponents, Mr McCarthy again described the LCT bill as a “tax on technology” that would also cost industry jobs and future investment.

“We based our business plan on sales volumes at five per cent import duty, 10 per cent GST and 25 per cent LCT. Now, if it turns out that the LCT is 33 per cent and import duty stays at 10 per cent, then you’re looking at very significant changes in retail prices, which will affect sales.

“We will invest $110 million next year in dealership upgrades, and that depends on a certain level of sales. About 100,000 cars were last year subject to LCT, with imports accounting for about 80 per cent.

“It (the LCT bill) has implications on the level of investment and therefore employment. We directly employ over 1000 people, and our dealers have another 1100 staff. The government made a decision without consultation based on spurious figures, but there are thousands of working families who depend on importers for their jobs.

“The FCAI has done a fantastic job on this issue, but the government’s level of engagement is so poor, you have to wonder if they’ve taken their eye off the ball. It has become a political issue that fails to take into account the reduced sales that have resulted.

“The government says its budget surplus is $22 billion and some say it is as high as $30 billion, so in the scheme of things $555 isn’t a lot.

“It can only damage the industry, but it appears the government is not going to give up on this. I can tell you neither are we. We are absolutely committed,” said Mr McCarthy.

The FCAI said last week that new-car dealers had already collected an estimated $15 to $20 million in increased luxury car taxes, which will have to be given back to car buyers if the bill is not introduced.

But the ATO and one of Australia’s largest dealer representative bodies, Deloitte Motor Industry Services, which represents more than 600 retail outlets covering all of the major luxury brands, has advised dealers to hold on to the money until the outcome of the second attempt to pass the bill is known.

Victoria’s peak automotive industry body, the VACC, last week welcomed the LCT bill’s defeat in parliament.

“Today, we and Australian car dealers have been vindicated. The senate has agreed with us that the eight per cent increase is unfair and the proposal to back-date it contravenes accepted taxation principles,” VACC executive director David Purchase said on September 4.

“The government’s proposal created confusion in the market place, an extra administrative burden on car dealers and anger among consumers. Now the government must now clear up the mess.

“Car dealers were put in an impossible position by being forced to collect a tax before the increase was ratified. Today’s announcement is a positive, but car dealers are still facing uncertainty and need answers to questions such as: ‘What do we do with the money collected?’ “VACC will continue to press for the abolition of the LCT completely. It is unfair and discriminatory as it singles out cars as luxury items while no other goods, we are aware of, attract a luxury tax. At the very least, the government must increase the LCT threshold to $75,000 or even $100,000,” said Mr Purchase.

The FCAI echoed the VACC’s response the same day.

“This was always bad policy and the Senate was right to reject it,” said FCAI chief executive Andrew McKellar.

“This is a vital reprieve for the Australian car industry and it’s hoped that this will provide a confidence boost to the industry at a time when there are clear signs of a market slowdown.

“It is a sensible outcome for small businesses, particularly tourism operators, farmers and those living in rural and regional areas who would have been slugged with this unnecessary and unfair tax hike.

“The senate acknowledged that many people in these circumstances rely on vehicles affected by the tax for their livelihood and safety.

“It is essential that the luxury car tax itself now be re-examined in full as part of the review of the tax system being conducted by treasury secretary, Ken Henry,” said Mr McKellar.

Read more:

LCT compromise on the cards as sales plummet

Senate hears final LCT pleas

LCT battle enters final phase

FCAI warns Senate on LCT

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