Mercedes-Benz : In breaking news that has startled Australia’s local automotive manufacturing community, the federal government today revealed the removal of the controversial Luxury Car Tax (LCT), with immediate effect.
This promise of long-awaited reform should see the prices for the top-end cars getting slashed and the customers of Mercedes-Benz and BMW who have more to spend on their vehicles will have more bang for their bucks.
End of the road: The bumpy history of Australia’s luxury car tax
Australia’s Luxury Car Tax has been causing pain for both consumers and the motor industry for more than 20 years.
It was introduced in 2000, at the same time as the GST, slugging cars worth over a government-determined value threshold with a 33% tax on the final price.
In the 2024-25 financial year, these thresholds were set at $91,387 for vehicles that are fuel-efficient and $80,567 for all others.
The tax of course has long been criticized as outdated in its rationale and irrational in its application to things.
Introduced originally to shield Australia’s own auto manufacturing industry from competitively priced imports, the LCT had outlived the closure of the country’s final car factory in 2017.
It has been widely decried by industry leaders as an unreasonable cost to impose on consumers.
“This was never really a good piece of fiscal policy,” said Sarah Mitchell, an analyst at the automotive industry. “It was not fair, it was not transparent and in more recent times, it was not even being aimed at real luxury vehicles.
Family SUVs such as the Toyota LandCruiser were slugged with thousands in LCT, while entry-level European luxury hatches dodged the tax altogether.”
Mercedes-Benz and BMW: The Ultimate Winners
High-end German car giants Mercedes-Benz, and BMW will be the big winners in the tax abandonment. Previously released data from earlier years revealed that customers of Mercedes-Benz paid the most LCT in total, among the buyers of any other marque, while BMW was not too far back.
“The end of the LCT is a milestone in the premium segment for Australia,” comments Mercedes-Benz Australia CEO Thomas Weber.
“This reform will mean direct benefits to the Australian public taking the form of up to 30 to 40 per cent better vehicle safety tiers and new environmental improvements, but at far cheaper price points by a long shot.
Pricing will be affected most on high-end models. For example, you could get a Mercedes-Benz S-Class sedan that once cost $330,000 with savings of as much as $70,000 or a BMW X7 SUV for around $45,000 less.
Even the more accessible luxury models will receive some significant cuts, with upper-crust versions of the Mercedes-Benz C-Class and BMW 3 Series, for example, possibly taking as much as $5,000-$10,000 being ripped from them depending on spec.
More Than Just German Luxury: The Broader Industry Ripple Effect
Mercedes-Benz and BMW are poised to benefit most from this tax reform, but their gain will have a ripple effect across the automotive world. Other European luxury brands like Audi, Lexus and Jaguar Land Rover have already said they will send the savings along to consumers.
Perhaps more startlingly, these changes also have real consequences for the mainstream brands with pricier models.
Toyota Australia has announced pricersises across its LandCruiser lineup to which applied relatively high luxury car tax despite not marketed as a luxury vehicle.
“This is the removal of a weird market distortion where family-focused trucks such as the LandCruiser and Nissan Patrol were suddenly taxed as ‘luxury’ items even though they didn’t need legitimacy to begin with, they just did a job,” says industry economist Dr Robert Chen.
“All the while, the real luxury-branded cars that were only slightly below the benchmark did not have to pay any tax at all.
Benefits to consumers other than reduction in price.
It is anticipated that the elimination of the LCT woud be beneficial beyond just a reduction in price. Industry observers believe consumers can expect a number of favorable developments:
More safety technology becomes standard: With luxury vehicles cheaper and cheaper to buy, fancy safety features that were previously reserved for the upper echelons of motoring will filter down faster.
Environmental innovation on steroids: High-end brands have long driven hybrid and electric innovation. The lower price may push more consumers toward these, the more eco-friendly options.
Clarified purchase decisions: The complex LCT calculation confused and confounded purchasers at the time of purchase, particularly if optional extras could tip a vehicle over the threshold. Its elimination makes purchasing more straightforward.
Improved vehicle spec: No longer will vehicles be de-featured just to drag them below the LCT threshold (manufacturers can now finally sell vehicles in a fully featured form without tax bracket driven compromise).
The Economics: Selling off the Lot
The government didn’t take the move lightly: The tax hauled in about $1 billion a year. But, the economic modelling of the measure forecasts that it may potentially be revenue positive, through additional vehicle sales, increased GST and flow-on effects on the economy.
The Treasury is forecasting the market for luxury vehicles to expand in the short term by a range of 0-15% in the first year of abolition and by 5-7% in the longer term.
This expansion is anticipated to bring a good number of job openings across the automotive retail, service, and support realms.
The reform also harmonises Australia’s tax treatment of cars with most other countries and has the potential of supporting the government’s ongoing and future trade deals, including with the EU.
Industry Reaction: A Celebration After a Long Campaign
The car industry’s reaction to the abolition of the LCT has been equally victorious, after repeated attempts to sway it.
F (laws)uit Future The move has been welcomed by the Federal Chamber of Automotive Industries (FCAI), which represents the majority of overseas car manufacturers that operate in Australia, as “long overdue but wholeheartedly welcomed”.
“For many years, we have been pointing out how this tax unfairly penalised Australian buyers of new vehicles and distorted the market,” says FCAI Chief Executive James Wilson. “Its repeal is a win for common sense tax policy and consumer choice.”
Dealers of luxury vehicles around the nation say they’re seeing a spike in questions from prospective customers, many who held off last year now going to market.
Analysts have said the first few months after the tax is thrown into the dustbin of history, sales of premium brands will be record as demand is freed up.
The Future: An Automotive World in Transformation
It’s game on for Australia’s car landscape, given the death of the LCT. The high- and premium-vehicle markets are anticipated to grow substantially as brands previously weakened by the tax disproportions recover their sales.
Experts also say they expect a price war over luxury brands now the artificial sticker price of the LCT has been repealed.
This increased competition may act as a stimulant to innovation for vehicle technology and customer service and ownership experiences.
Advice for prospective premium vehicle buyers The message from industry insiders for consumers considering a premium vehicle purchase is this: with the LCT gone, it is a buyer’s market like we’ve never seen for luxury cars in Australia before.
With mill prices massively down and manufacturers hungrily eyeing to take advantage of the newly emerged market’s situation, the environment to negotiate best deals is extremely favourable.
a new dawn for Australian automotive buyers
The demise of Australia’s Luxury Car Tax the end of a policy that was generally believed to have served its purpose.
For Mercedes-Benz and BMW, and other such luxury brands, it is a chance to tap a new bunch of customers who were priced out of the market because of artificial tax barriers.
Consumers in Australia will not only benefit with more affordable vehicles but will gain access to new vehicle technologies sooner, greater environmental choice, and a more competitive market for all new vehicle purchases.
After sustained discussions, it looks like the luxury car tax has driven off into the sunset to the relief of industry and consumers alike.