Interview on 3AW Drive with Tom Elliott.
Topics: luxury car tax, Brexit impact
Tom Elliott: Do you reckon you pay too much for a car here in Australia? I mean, look at what you can buy cars for in the United States or in the UK, you run it through your exchange rate calculator and you think: we’re being ripped off. Well, in many cases, we are. Now, in the good ol’ days when we had, at one stage, six or seven different car manufacturers here, there was an argument – not a good one – but an argument to erect a tariff war. So what they did was right up until the- I think, it was the early 90s was put tariffs of 40, 50, 60 per cent on important cars so that we would go and buy the locally-produced cars: the Holdens, the Fords, that sort of thing, even if they weren’t quite as well made or not quite as advanced. The point is the price differential was so great it was usually worth buying an Australian car. And Australians in the 70s and 80s took great pride in buying and driving Australian cars.
Now, that all changed with the Button plan, which said there were too many car manufacturers in a small market. I don’t think Senator Button thought that we’d end up with no car manufacturers whatsoever. But in 2016, the Ford Motor Company seized manufacturing here at its Broadmeadows plant and in 2017, both Holden and Toyota decided to stop making cars in Australia as well. So while we have a parts industry still and a few specialist vehicles built in this country, and a lot of buses and caravans and that sort of thing, we don’t make passenger cars anymore, not from the ground up. Now, that’s sad. I’ve got one and I want to hang on to it because I think one day it might be worth a bit but it’s also a good car to drive. But when we go back to the rationale behind putting taxes on cars, it was always about, always about protecting the local manufacturers. Well, they’re gone and yet, if you buy, I don’t know, a BMW X3, a medium-sized SUV, it might cost you $80,000, $90,000. It’s a nice car. It’s, I guess, verging on expensive but they’re pretty common. I mean, just have a look around. You get hit with an import duty of 5 per cent. You think you’d hit with a luxury car tax – 33 cents in every dollar for which the car sells over $67,500. Now, that luxury car tax is set at $67,500 because that, going back a few years, was roughly the price of a top model locally-made Holden or Ford – think a Statesman or an LTD.
So, motorists pay too much tax, alright. We pay tax every time we go to the bowser. We pay tax like on our rego, TAC fees and the like, and we pay far too much tax when we buy cars. Now, given that we don’t have the local industry to protect anymore, I think we should get rid of the import duty on cars. There’s no good reason for it. And we should get rid of luxury car tax. Luxury car tax stops Australian families from being able to buy better, safer vehicles because it puts government taxes on top of the purchase price of the vehicle. Anyway, there are negotiations going on between the European Union and Australia. It is possible that some of these taxes get dropped in return from concessions from the European Union.
Before we went to air today, I spoke to the Minister for Trade, Tourism and Investment, Senator Simon Birmingham and I began by asking him: why are we still paying import duty and luxury car tax to protect an industry that no longer exists? Here’s what he had to say.
Simon Birmingham: Well, Tom, a couple of points there. Obviously, the luxury car tax is a non-discriminatory tax. It’s been in place for a long period of time and duties themselves have been brought down significantly over the years but to remain in place, in some instances, in others they’ve been negotiated away as part of free trade deals and of course, we remain open to looking at that for the remaining markets or source markets when it comes to cars if under trade terms we can make sure that our businesses, our farmers, our exports gain an advantage into their markets just as they seek an advantage into Australia for their cars.
Tom Elliott: Okay. So you’re saying that, for example, take cars from Europe – and we buy a lot of them from German manufacturers for example like BMW and Mercedes and so forth – you’re saying you might trade away the 5 per cent import duty if they agree to stop some duties on Australian exports?
Simon Birmingham: Yes, Tom. So under our trade agreements that we’ve struck with Japan and Korea, we eliminated the tariffs in relation to cars from those sorts of countries and in return, we’ve seen huge growth in terms of Australian beef exports and other products and services into those markets and many others. We’re now negotiating a trade agreement potentially with the European Union. I expect – and indeed you can read in newspapers – that their negotiators are putting better access for their cars into the Australian market. They don’t like the fact, not unsurprisingly, that there’s a 5 per cent tariff applied to their cars but it’s not applied to those from Japan and Korea. In the end, if we can get a good enough deal for our farmers and other businesses into the European markets, we’ll contemplate whether we remove that tariff on European cars. But it’s got to be a deal that’s in the interests of Australian exporters as well as Australian consumers.
Tom Elliott: Yeah. What about Australian motorists? I mean, if you buy an $80,000 car from Europe, you’re spending, I think, what would that be, close to $10,000 in extra taxes here. Why tax the motorist who just wants to buy a reasonably upmarket German-made car, for example? Why should they pay this surcharge?
Simon Birmingham: Well, of course, you can argue that about, in many ways, any taxes but yes, this one, as time has evolved, it’s become more targeted towards some cars and not others because we’ve eliminated the tariffs where we’ve managed to get good trade deals. But- and this is about standing up for Australian business and industry as well, that if we’re going to eliminate tariffs on such products, we now want to make sure we get something for it, and that something for it is to make sure that those countries who want to send tariff-free- their goods or products into Australia are going to allow our goods or products to enter their country tariff-free.
Tom Elliott: But where is the logic on just a luxury car tax? I mean, if I buy a gigantic 50-foot motorboat to scoot around Port Phillip Bay, there’s no luxury tax on that. If I buy a jewel encrusted hot tub, there’s no luxury tax on that. But if I buy a car that costs more than about $67,000, there is a tax on that. Where’s the logic?
Simon Birmingham: Look, Tom, if you were to go back and start all over again, maybe you would identify a whole range of different luxury goods that were targeted in that sense. We have the tax system that we have that’s evolved over many decades and the luxury car tax has been in place for a very long period of time. All of these taxes are things that we love not to have but we have them so that we can pay for roads, schools, defence forces, hospitals, aged care, disability insurance schemes, all of those sorts of public services.
Tom Elliott: Well, that’s not entirely true. The import duty on cars was designed to protect the local industry and the luxury car tax was always set at a level so the top Ford and the top Holden, whatever they were priced at, it was any car that was more expensive and that was where it was set. Now, there is no top locally-made Ford now. There is no top locally-made Holden, which is very sad. So it seems to me the original logic for the tax no longer applies.
Simon Birmingham: Those arguments are not without validity except for the reality that they are still also revenue generators for the budget bottom line, and that revenue goes into general revenue support for all of the types of essential services: roads and welfare payments and support that I spoke about before.
Tom Elliott: Yeah I get that, but I mean, having a massive luxury boat is a genuine luxury. Having, say, a car that cost $80,000 is, for many families, just a normal family runabout. It’s not actually a luxury; it’s a necessity of life. So you’re taxing the necessity of life, a reasonable motorcar, but you don’t tax the luxury yacht. To me, that just doesn’t make sense.
Simon Birmingham: And as I said before, if you are starting from scratch all over again, you might look to your definition of luxury goods in a different way.
Tom Elliott: Different way.
Simon Birmingham: Now, again, we’re entering into these trade negotiations that could well, as other trade deals have done as we saw with those deals with Japan or Korea or the like, get us to a point where we can manage the best of all worlds. A scenario where prices come down for Australian consumers because tariffs are eliminated at the Australian end but opportunities increase for Australian exporters because tariffs are eliminated or reduced on the goods and services that they export, which means that overall we’re better off. We’re able to sell more goods to the world. Our exports are now at a record level and this is something that, in part, has been achieved because of these types of trade deals. But we’ve now recorded trade surpluses in 31 out of the last 36 months in the country. I think that would surprise many of your listeners, sort of instinctively, when I talk to a lot of Australians, they think we import more than we export. Well, for 31 out of the last 36 months, we’ve been exporting more than we import and that’s been driven by a whole range of factors. But opening up access to other markets as our Government has done with Japan, with Korea, with China, through the Trans-Pacific Partnership; what we want to keep doing with new agreements with Indonesia which we’ve finished negotiations on and we just need the Labor Party to say they’ll support its ratification through the Parliament and then Europe and beyond.
Tom Elliott: Now, very quickly, Britain appears to be pushing ahead with Brexit, although it changes on a daily basis. If Brexit occurs, if Britain withdraws from the European Union, will that increase the opportunities for British-Australia trade?
Simon Birmingham: I hope so. Australia got a pretty raw deal when Britain entered the European common market back in the 70s and we saw trade with the UK drop significantly at that time. We are absolutely ready, willing and eager to strike new trade terms with the UK as quickly as we can after they leave the EU, assuming that they do. Obviously, we can’t control the uncertainties happening on the other side of the world but I’ve had discussions with my UK counterpart. I am hoping to be able to welcome her to Australia next week to be able to really put some meat on the bones of those discussions ahead of any Brexit scenario. But clearly, those uncertainties in the UK mean there’s a bit of a question mark that hangs over that planned visit.
Tom Elliott: Indeed. Thank you for your time. Senator Simon Birmingham, Minister for Trade, Tourism and Investment.