Potential Price Drop: Luxury Cars in Australia Set to Become More Affordable with EU Agreement Progress

FTA Discussions Between Australia and EU Could Lead to Scrapping of Luxury Car Tax

An upcoming free-trade agreement (FTA) between Australia and the European Union shows promise of eliminating the controversial Luxury Car Tax (LCT). The federal Minister for Trade and Tourism, Don Farrell, along with European Commissioner for Trade and Economic Security, Maroš Šefčovič, and Commissioner for Agriculture and Food Christophe Hansen, expressed optimism following discussions in Belgium, stating that progress was made in narrowing gaps on key issues.

Reports suggest that the deal is near completion, with only one remaining issue, likely related to meat exports, to be resolved before finalizing the agreement. The EU is pushing for the removal of Australia’s LCT, while Australia seeks improved market access for its agricultural exports, a point of contention in previous negotiations.

Australia and the EU engage in significant trade, with over $100 billion in goods and services exchanged annually, making the EU Australia’s third-largest trading partner. Currently, European vehicles face a five per cent import tariff in Australia due to the absence of an FTA.

The LCT, despite its name, impacts not only luxury European cars but also popular Australian models like the Toyota LandCruiser 300 Series and Nissan Patrol. Projected to cost new-car buyers $1.21 billion in the upcoming financial year, the tax adds 33 per cent to the price of vehicles exceeding the LCT threshold, currently set at $91,387 for fuel-efficient and electric vehicles, and $80,567 for others.

The government adjusts these thresholds annually based on the Consumer Price Index (CPI). Recent legislation redefined fuel-efficient vehicles as those consuming under 3.5L/100km, aiming to promote environmentally friendly transport options.

Prior discussions suggested a gradual reduction of the LCT rather than an immediate removal to prevent a sharp decline in vehicle resale values. The Australian Automotive Dealer Association advocated for abolishing the tax or implementing reforms such as raising the threshold and exempting low-emission vehicles in their pre-budget submission.