‘Green’ LCT favours BMW

BMW Australia has emerged the biggest winner from the federal government’s eight per cent luxury car tax (LCT) hike, which finally passed through the Senate last week after being complicated by three amendments including a Greens demand to raise the threshold to $75,000 for cars that consume less than 7.0L/100km.

While the controversial LCT increase, from 25 to 33 per cent for the portion of a vehicle’s transaction price over the unchanged threshold of $57,180, will be applied retrospectively from July 1, the exemptions for ‘green’ cars will not apply until the new LCT law is officially enacted.

GST-registered primary producers and tourism operators will also be reprieved, as per Family First senator Steve Fielding’s amendment, via rebates, while the Senate also agreed to Senator Nick Xenophon's call to apply a sunset clause to the tax’s indexation to the controversial consumer price index for motor vehicles (CPIMV).

Also upheld was Senator Xenophon's request to ensure the increase would not apply to purchasers who entered into sale contracts before the night of the federal budget in May, when the government announced the LCT rise.

The Senate rejected an opposition proposal to continue to charge LCT at 25 per cent between $57,180 and $90,000, and at 33 per cent thereafter.

The opposition opposed the new LCT bill on the grounds rebates for farmers and tourism businesses would be lead to unfair results, and that European “sports” car buyers would be exempt from the higher tax while country people and buyers of Australian-made cars will not.

In fact, only about 10 models will be affected in total, most of them mid-sized premium European cars with diesel engines.

Left: BMW 320d and Audi A4 2.0 TDI.

Now exempt from LCT because they are priced above $57,180 but consume less than 7.0L/100km are Audi’s A4 2.0 TDI Avant, Jaguar’s X-Type 2.2D Sport, the Mercedes-Benz C220 CDI sedan and Estate and Saab’s 9-3 TiD convertible and wagon – all of which are expected to drop slightly in price.

BMW has the most models affected by the ‘green’ clause, and has predicted it will sell 2000 cars in the next 12 months that will be exempt under the new tax.

As one of the few full-size models to return better than 7.0L/100km, BMW’s 520d is one of the few large vehicles to become exempt from LCT, and is therefore the biggest beneficiary of the $75,000-7.0L/100km exemption.

The 520d is currently the best-selling version of BMW’s 5 Series in Australia and, because its 125kW/340Nm 2.0-litre four-cylinder diesel engine returns average consumption of 6.1L/100km, its price will drop about $5000 – from $81,233 to about $76,200. That’s almost $10,000 less than the previous entry-level 5 Series variant, the petrol-powered 523i ($86,530).

Three other BMW models also qualify for the reduced luxury tax, each also powered by the same turbo-diesel engine as the 520d: the 320d sedan and 320d Executive sedan (6.0L/100km) and the X3 2.0d SUV, which just scrapes in with consumption of 7.0L/100km and accounts for one-third of all X3 sales.

Furthermore, BMW expects a higher take-up of options on those ‘green’ models, because their prices will be reduced by one-third, and has also predicted that similar models will be fast-tracked for sale in Australia because of the lower tax (and therefore cheaper pricetags) they will attract.

The best example of this is BMW’s 330d, which is powered by a 3.0-litre turbo-disel engine that produces 180kW and 520Nm of torque, yet returns just 5.7L/100km and is currently under consideration for sale here.

BMW says the business case for the 330d, and potentially many other similar models from BMW and other brand, will be made more favourable by its lower price and therefore its higher forecast sales volumes.

BMW says it will “now be able to pursue a stronger case for the introduction of the impressive new 330d Sedan”, which could now go on sale here as early as mid-2009.

“The new luxury car tax rate structure will encourage more people to buy BMW cars that deliver outstanding fuel economy and low emissions,” said BMW Australia managing director Guenther Seemann.

“In Europe, BMW Group offers 24 models that emit less than 140g of CO2 per km, and we have been acclaimed as the company that, of all car-makers, has made the greatest advances in CO2 reduction in recent times.

“With the new luxury car tax regime in place, we will continue to look at other models consuming seven litres per 100km or less that could be offered in Australia. I must say this move does strengthen our argument for the introduction of the magnificent 330d in due course.

“I am sure there will be a significant market in Australia for a premium compact sporting sedan that has the thirst of a four cylinder, the smoothness of our renowned straight-six and the performance of a V8,” he said.

BMW says it is resigned to the higher new LCT rate for vehicles priced over $57,180, but has described the 7.0L/100km-$75,000 exemption as “a silver lining in the new LCT cloud”.

Other car-makers and the federal Opposition are not as happy, with Coalition treasury spokeswoman Julie Bishop claiming the amended LCT was a dog's breakfast that offended treasury principles of efficiency, equity, simplicity and ease of regulation.

“Here's the party of the working classes exempting European sports cars but slugging Australian-made cars such as the Ford Territory and Holden Commodore with an additional so-called luxury car tax,” she said. “Not one car made in Australia will be exempted.” The Victorian Automotive Chamber of Commerce (VACC) said the amendments made what was bad LCT legislation worse.

“This is an unsatisfactory outcome, made worse by further exemptions. It makes the luxury car tax more confusing than ever,” said VACC executive director David Purchase.

“The concessions to the minor parties simply muddy the issue and, for car dealers, will add to the complexity of applying this unjustified tax.

“The threshold has been increased from $51,180 to $75,000 for low-emission vehicles. This is arbitrary nonsense. What comes out of an exhaust is only one part of the environmental equation. This concession takes no account of the energy inputs required to manufacture one vehicle compared to another, nor from how far around the world it has had to be transported to reach the Australian market.

“VACC is concerned about the lack of detail regarding the exemption of farm vehicles from the increase. Is it really necessary to pigeon-hole vehicle use? Doesn’t this discriminate against other honest Australian workers, who are not ‘primary producers’ but are trying to make a living in these challenging economic times nevertheless? “It is the VACC’s view that LCT is out-dated and unjust. How can cars attract a unique additional tax, when other ‘luxury’ items such as plasma TVs, holidays, and yachts do not?” said Mr Purchase.

Like the VACC, the Federal Chamber of Automotive Industries (FCAI) has called on the Ken Henry-led inquiry into Australia’s taxation system to abolish the LCT altogether.

“This tax hike was always bad policy and the various conflicting amendments passed by the Senate have only deepened the flaws in the legislation,” said FCAI chief executive Andrew McKellar last week.

“The industry is disappointed the federal government has pursued political expediency and sacrificed principles of good policy formulation in order to achieve a short-term tax grab.

“We are concerned with the lack of consultation and particularly disappointed with the apparent disregard the government has shown towards the Australian automotive industry on this matter,” Mr McKellar said.

“It was particularly unedifying to observe some senators from Victoria and South Australia supporting legislation that will hurt the car industry an industry that makes such an important contribution to the economies of their home states.

“The Senate process has raised serious concerns about the entire structure and impact of the luxury car tax and it is now essential that it be comprehensively reconsidered in the forthcoming tax review, to be conducted by treasury secretary Ken Henry.

“The car industry remains firmly resolved to seek the abolition of this unnecessary and discriminatory tax. This tax hike has already adversely affected the car industry but we must now look to rebuild confidence in the market,” said Mr McKellar.

Read more:

Luxury car tax hike all but official

LCT hangs in balance

LCT uncertainty to linger on

LCT compromise on the cards as sales plummet

Senate hears final LCT pleas