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Wednesday, 3 September 2008
Page: 4373

Senator BUSHBY (11:01 AM) —When I was last speaking on the Tax Laws Amendment (Luxury Car Tax) Bill 2008 and related bills I was saying to the Senate that you would think that a Labor government, of all flavours of governments, would want to see more people able to afford cars that are well equipped with safety and technological features; that they would be looking to bring the price of such vehicles down so that more Australian working families could afford them. But, no, here we have the government saying, ‘No, let only the rich have them.’ What happened to equity in the Labor Party?

The simple fact is that the only rationale the Rudd Labor government has for pursuing this tax is to hit the rich. This was confirmed in Senate estimates on Monday, 2 June 2008, when the Minister for Innovation, Industry, Science and Research, Senator Kim Carr, confirmed that the tax was a reintroduction of class warfare. The irony is that by increasing the tax the government is putting those cars they refer to as ‘luxury’ further out of the reach of many Australians. And to claim that the tax hike will curb inflation when the proposed luxury car tax will increase the price of 12 per cent of cars sold in Australia, including the most common luxury car, the Toyota LandCruiser wagon, is innovative if nothing else. Economics 101 tells us that if you put the price up it is not deflationary but inflationary. The March discussion paper by Labor’s own ex-Premier and special appointee to conduct an inquiry into the car industry, Mr Bracks, itself contains evidence that Mr Bracks was minded to reduce, not increase, the luxury car tax. The paper commented on:

... the increasing number of Australian-made models now subject to the LCT as the threshold has not kept pace with price increases for upper-end vehicles. In addition, the inclusion of more safety and other features in upper and luxury vehicles is also increasing their price.

Post the budget, it appears that any motivation to address this observation has conveniently disappeared.

It is also worth noting that no other comparable country has a luxury car tax. British Columbia, a province of Canada, has a two to three per cent luxury car tax, but not in the same sense that we do and it does not call it a luxury car tax. Pakistan has a two per cent tax on luxury vehicles but, again, it does not refer to it in the same way. In 2007, socialist Venezuelan leader Hugo Chavez was quoted as having plans to impose a tax on luxury items such as Hummers, so maybe Venezuela will join us soon and become the only other country in the world that has this type of luxury car tax.

Mr McKellar of the Federal Chamber of Automotive Industries noted in his evidence to the Senate Economics Committee that, in his view, a Toyota LandCruiser was not a luxury vehicle, despite being classified as one under the luxury car tax threshold. I would like to quote the comments he made to the committee because I think they are quite illuminating:

This vehicle retails at a price of around $54,000 or $55,000, but with the addition of a few options and accessories, such as air-conditioning, a bullbar and a winch, it incurs luxury car tax. For those driving on rural roads, unsealed roads, frequently having to dodge wildlife and so on, the addition of these sorts of features is quite normal. Equally, operating in high temperatures, the use of an air-conditioning system in a vehicle like that also makes good sense. It would hardly, in this day and age, be considered to be a luxury. I must say that that vehicle, which incurs increasing amounts of luxury car tax, comes standard without carpet. The interior is fitted out in vinyl as standard so that you can hose out the inside. That was the vehicle that introduced Australians to the Toyota brand back in the 1950s. The LandCruiser earned a reputation for reliability and versatility during the construction of the iconic Snowy Mountains scheme, but today, according to the definitions of the luxury car tax, it is a luxury vehicle.

The Toyota LandCruiser is Australia’s best-selling so-called luxury car, with just over 6,000 sold in Australia in 2007. This and many other four-wheel-drive vehicles are predominantly driven either by people in rural and regional Australia or by those with a need for a people mover—not by the rich, as the Labor government would have us believe.

It is also very important to note that the percentage of Australian made cars subject to the luxury car tax has increased over time. As such, this measure will affect the Australian car industry. In 1979, when the threshold was originally introduced, only the Holden Caprice and the Ford LTD were above the threshold. Today, variants of Commodores, Ford Falcons, the Ford Territory, HSVs, FPVs and even Toyotas all get caught under the luxury car tax. As noted over and again in the hearings, without meaningful indexation of the threshold we could see midrange and even base model Falcons and Commodores being defined as luxury cars in coming years.

The percentage of locally made cars caught by the tax has increased dramatically, as noted by the Victorian Automobile Chamber of Commerce. It said that while sales of the Holden Commodore in the $35,000 to $45,000 price bracket have fallen from 60,658 in 2005 to 41,331 in 2007—a period of just two years—sales of models over $55,000 have doubled, from 6,073 in 2005 to 11,990 in 2007. I make the point again: the percentage of locally made cars caught by the tax is increasing dramatically. So the effect of this tax on locally made cars is becoming far more pointed.

Similarly, while Ford has seen a fall of around 25 per cent of sales in the $35,000 to $45,000 bracket, sales in the $55,000-plus bracket have remained constant. Again, the percentage is increasing for those cars manufactured in Australia by Ford that actually fall within the threshold range. As such the proposed tax hike will hit that part of the local vehicle manufacturing sector that is still growing or maintaining sales. It currently applies to six per cent of locally made cars and that only stands to increase. Shamefully, we hear today that the government has done a deal with the Greens that will see 24 imported cars exempted, but not one of the Australian cars currently falling over the threshold will be. Cars like BMWs, Mercedes and Alfa Romeos will all be exempted but Fords, Holdens and Australian-made Toyotas—not one. The arguments put by the government about taxing luxury sound very empty when you look at the deals that are being done.

Mr McKellar from the Federal Chamber of Automotive Industries provided an insight into the original purpose of the tax and how it is now counterproductive to that original purpose. He stated:

When this tax was originally introduced it was a thinly veiled protectionist measure for the local industry. These days it actually adversely impacts the industry, because it means the level of competition that those local brands are facing is more and more intense.

I do not believe that my contribution today will cover the field in terms of the detrimental impacts of passing this bill. But I would like to note another aspect of concern: the impact of the proposed tax hike on the tourism industry. The Australian Tourism Export Council estimates that some 8,000 vehicles that are subject to the tax are sold to small businesses operating tours and car hire businesses in the tourism industry each year. These small businesses are already struggling with high fuel prices and softening conditions, in part caused by other taxes imposed on the industry by the Rudd government. Their customers demand high quality and near new cars, which requires a regular turnover of vehicles. Given that the global tourism industry operates on a 1 April year and prices are already set for the coming year, Australian tourism companies that have already put their prices into the market cannot pass on the unforeseen cost of this tax to customers. This tax hike, if passed, will represent another challenge facing them that they did not need.

For these and a whole host of other reasons this legislation is clearly ill-conceived, distortionary, unlikely to achieve any of the government’s aims, whether they be raising additional taxes or hitting the rich, and will decrease and delay the availability of new innovations in vehicle safety, efficiency and environmental friendliness. It will put cars with new innovations further out of reach of ordinary Australians and will harm the viability of Australian manufacturers and retailers. This legislation should be opposed in this place.