$260m ‘bonus’ on top of $3bn LCT haul

A quarter of a billion dollar bonus will land in government coffers over the next four years, courtesy of the luxury car tax (LCT).

But some key industry organisations are concerned around how it would be collected once personal imports are green-lit.

The latest budget papers tabled by treasurer Scott Morrison show the government expects to earn almost $3 billion from the LCT up until the 2019-20 financial year.

Hidden in it is a $240 million bonus for the government as a consequence of Australia’s growing appetite for new cars.

The government expects a $30 million jump in LCT earnings in the wake of plans to open up the Australian market to parallel imports in 2018 – with private buyers still expected to stump up LCT on vehicles they bring in directly from overseas.

“LCT receipts are forecast to grow by 11.5% in 2015-16 in line with stronger-than-expected sales of vehicles subject to LCT,” the budget papers say.

“Since the 2015-16 Mid-Year Economic and Fiscal Forecast, forecast LCT receipts have been revised up by $240 million over the four years to 2018-19.”

Part of that is an expected $60 million jump in LCT revenue this financial year alone.

The papers show the tax is expected to stay relatively flat until the 2018-19 financial year, at around $570 million, before making a sharp jump to about $600 million in 2018-19. The financial year after that LCT revenue will jump to $630 million.

Concerns have emerged recently over how the LCT would be collected when it comes to consumers personally importing cars under the proposed new regulations for parallel imports, given local dealers currently did this.

The government said it had no concerns over tax ­collection because GST and LCT would be ­collected by the Immigration Department as part of the standard import clearance faced by all ­imports.

VACC, the peak automotive industry body in Victoria, has also been quite vocal on ditching the LCT.

Rather than proposing risky personal new vehicle imports, VACC notes that the government should reduce the tax burden on Australians by removing the LCT.

Removal of the LCT would cause a reduction in the government’s revenue of around $500 million per year.

The government is in favour of relaxing restrictions on new car imports and enabling individuals and parallel importers to purchase new cars, motorcycles and farm machinery from overseas, as it would reduce red tape, provide greater consumer competition and make vehicles more affordable.

The Federal Chamber of Automotive Industries (FCAI) has lobbied the government to scrap the LCT. FCAI chief executive, Tony Weber, supported the productivity commission’s report last year that the LCT be removed.

“Taxes and other government charges make up around 20% of the price of new cars in Australia. Fixing those tax arrangements, including the poorly-designed LCT, is a better and more targeted way of addressing car affordability than a change that will only ultimately hurt consumers,” said Weber last year.

The Australian Automotive Dealers Association also warns: “A number of inherent flaws in the LCT’s policy structure have created complicated and unfair operating conditions for new car dealers in Australia.”

“For example, the tax’s discriminatory nature has been a particular pain point for the industry. The LCT does not apply to other luxury goods such as yachts, jewellery, watches, private aircraft and artwork.”

For 2015-16, the tax applies to cars costing more than $63,184. However, in a deal brokered with carmakers worried that the tax would discourage buyers from paying more for fuel-efficient technology, the government has set a higher $75,375 threshold for vehicles using no more than 7.0L/100km.