Labor hits family-friendly hybrids with luxury car tax

“The government is modernising the definition to reflect modern standards of efficiency.”

The measure is the first to actively penalise buyers of increasingly popular hybrid vehicles, which typically have both an internal combustion engine and a modest-range battery and electric motor, and which generally retail well below the cost of pure electric vehicles.

Luxury car tax is imposed at 33 per cent on every dollar above $76,950 while vehicles defined as fuel-efficient have a threshold of $89,332.

Treasury papers show the government expects to raise $420 million from car buyers via customs duties in 2023-24, a figure that will leap 37 per cent once the additional duties kick in.

Critical segment

Industry figures are concerned the tax on hybrids sends a bad signal as Labor works on developing a nationwide fuel efficiency standard aimed at spurring imports of EVs by raising the cost to carmakers of selling higher-emitting vehicles.

Sources said the cars most likely to be hit the hardest by the new luxury car tax threshold include models such as the Kluger, which Toyota says has a combined cycle fuel consumption rate of 5.6 litres per 100 kilometres. The car costs between $63,000 and about $86,000, depending on trim.

Others likely to face the tax would be BMW 420i sport coupes, Mercedes CLA 250 coupes and Mazda CX-90 diesels. Cars that would not be affected include Toyota RAV4s, and Hyundai Santa Fes.

“This is a measure that will make cars even more expensive,” Federal Chamber of Automotive Industries chief executive Tony Weber told The Australian Financial Review.

“At a time when we want people to buy low-emissions technologies, why are we increasing taxation on them? We should be aiming to get as many people as physically possible into low-emission technology.”

Mr Weber said the tax increase would apply to a critical segment of the car market that tended to serve larger families that were keen to reduce their emissions but did not have the option of buying seven-seater EVs because they were not available.

“These people want to do the right thing for the environment and buy a low-emissions vehicle that suits their family’s needs, and they’re having an additional tax imposed on them.”

Australian Automotive Dealer Association chief executive James Voortman called for a “root and branch” review of car taxes, saying the latest changes made a bad system worse.

“The LCT is an outdated tax meant for a time when Australia still manufactured cars – it should have been abolished years ago, but now it’s being used to further tax fuel-efficient cars,” he said.

“It is inflationary and will dissuade consumers from buying vehicles with the best safety and fuel-efficient technology.”

Labor is committed to introducing a fuel efficiency standard but has shelved plans to unveil details of the scheme until next year because of concerns over the cost of living.