Opinion Piece by David Blackhall
On 23 August, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) passed through the House of Representatives. When finalised, this trade deal will eliminate tariffs on new vehicles imported from countries like Canada and Mexico providing relief for a small number of new car buyers in Australia.
Unfortunately, the TPP-11 will not change the fact that roughly a third of all cars sold in Australia will continue to be hit by import tariffs.
Tariffs are never good for consumers and they are very difficult to stomach when the industry they are protecting no longer exists.
In October 2017, the last Australian manufactured vehicle rolled off the production line and with it went the rationale for the passenger vehicle tariff. In May, the Federal Government missed an opportunity in its first post-automotive manufacturing budget to abolish the 5 per cent tax it applies to imported vehicles. Instead, motorists will continue to pay more than half a billion dollars a year to the Government for the privilege of buying new, safer, environmentally friendly and energy efficient vehicles.
This is a shame because the Government has done good work in recent years on removing tariffs on cars through its free trade agreements with China, Japan, Korea, and more recently Indonesia. However, tariffs still apply to cars from non-FTA countries. This secret and discriminatory tax remains on approximately 400,000 new vehicles sold in Australia each year. On average, this is estimated to be $1,900 tax per vehicle.
The sale of new cars brings significant societal benefits as they are safer, more environmentally friendly and more fuel efficient. Improving road safety, reducing vehicle emissions and bringing down energy costs are all Government priorities and these taxes hinder progress towards these goals.
There is an estimated $1,500 in import tax for a mid-range VW Golf, one of the more popular small cars sold in the country. A similar amount of tax is now on the Holden Commodore after its production moved from Adelaide to Germany. Many models from popular brands such as Ford, Nissan and Suzuki are built in non-FTA countries and thus subject to this hidden import tax.
The Volvo XC60, a five-star ANCAP rated vehicle which is highly regarded for its state-of-the-art safety features and is ranked on the Government’s Green Vehicle Guide as one of the cleanest most efficient vehicles on sale in Australia, attracts an extra $2,350 in duties.
Significant duties are applied to some electric vehicles, such as the new Jaguar I-pace and the Renault Zoe – cars with zero tailpipe emissions.
There are countless other examples of the price of various vehicle models being inflated by the tariff.
Trade policy aficionados say that the vehicle tariff will naturally fall away as part of the inevitable free trade agreement with the EU. However, free trade agreements can drag on and motorists would be wise to not hold their breath in the case of the EU where we are negotiating with a Union of 28-member states and which is also currently managing the departure of the United Kingdom.
Consumers deserve immediate relief for new vehicles and so does industry, particularly those new car dealerships which have a disproportionate amount of product on their showroom floor which just happens to be manufactured in a non-FTA country.
The tariff is just one piece of the affordability puzzle. The real crime for consumers is the compounding nature of Australia’s automotive taxation regime. The tariff applies a 5 per cent charge to the landed cost of an imported vehicle. The GST is then applied on top of that. The inflationary effect of the tariff can push the price of a vehicle above the threshold for the luxury car tax, incurring a rate of 33% on the amount above $66,331 or $75,526 for a fuel-efficient vehicle.
Once the Feds are done with you, the States have their turn with most rates of stamp duty linked to the price of the car. State Treasuries in particular have targeted motorists in recent times with Queensland introducing its own version of the luxury car tax in this year’s state budget and Victoria increasing stamp duty on new cars by a whopping 30% at last year’s budget.
After all of these taxes, motorists still have to pay registration charges, fuel taxes and road tolls. With the inevitable decline of fuel excise revenue and the emergence of road pricing as an area of interest, Australia needs an urgent discussion on how to overhaul the way motorists are taxed.
There are no quick fixes and much of this will hinge on political factors and the development of new regulations. However, removing the tariff on imported vehicles can be quick and easy as it can be done through a simple regulatory change, by removing motor vehicles from the Excluded Goods Schedule of the Tariff Concession System.
The passenger vehicle tariff is a relic of the past, which suited a time when Australia had a vehicle manufacturing capability. The industry no longer exists, and motorists deserve relief from unfair taxation.