House of Representatives

Tax Laws Amendment (Luxury Car Tax) Bill 2008

Second Reading Speech

Mr Swan (Treasurer)

I move:

That this bill be now read a second time.

These amendments increase the luxury car tax rate from 25 per cent to 33 per cent to apply on and from 1 July 2008. The government recognises that, if everyone pays their fair share of tax, and we plug the gaps in the system, we can reduce the overall tax burden imposed on working families.

This increase was announced in the 2008-09 budget as part of the government's package of measures to enhance fairness in the tax system. The government believes that Australians who can afford luxury vehicles have the capacity to contribute to revenue at a higher rate than other car buyers. Additionally the measure is expected to contribute to the necessary task of ensuring that the budget relieves pressure on inflation. The measure is expected to raise $555 million in additional revenue over the forward estimates.

Since 1979, successive Australian governments have imposed an additional tax on luxury vehicles. The luxury car tax was introduced on 1 July 2000 when the GST was introduced and the wholesale sales tax abolished.

Luxury car tax applies to cars whose price, including GST, exceeds the luxury car tax threshold, which is currently $57,123.

The luxury car tax rate applies to the value of the car, excluding GST, that is greater than the luxury car tax threshold.

Certain types of cars are exempt from the tax. This includes most commercial vehicles, most second-hand cars, motorhomes, campervans, and prescribed emergency vehicles. We are not changing these arrangements.

There are existing exemptions in the law to ensure that GST and luxury car tax do not apply to modifications for transporting the disabled.

A car specially fitted out for transporting a person with a disability who uses a wheelchair is excluded from the definition of a 'luxury car' provided the car is not also GST-free under the GST law.

In addition, a disabled veteran or an eligible person with a disability can purchase a car GST-free up to the value of the luxury car tax threshold.

These significant exemptions from GST and luxury car tax will remain.

While the provisions in this bill make no changes to the treatment of people with a disability, I asked the Treasury to consult with representatives of disabled persons to ensure that the exemptions were working as intended.

These discussions revealed that there is a need for a clearer explanation of the current exemptions so that people can understand their entitlements under the luxury car tax and GST laws. I have asked the Commissioner of Taxation to prepare explanatory material as soon as possible. Treasury will consult further with the sector if any additional issues arise.

I have also asked the commissioner to release material explaining the implications for the industry and purchasers of luxury cars.

I turn now to some facts and figures about the purchase of cars in Australia.

It is estimated that around 10 per cent or around 100,000 of all new car sales made in Australia in 2007 were subject to luxury car tax. The tax is applied to both imported vehicles as well as domestically manufactured cars.

Of the top 20 selling cars in 2007, which covers more than 50 per cent of the car market, less than four per cent of those sold are subject to luxury car tax. At the lower end, the increase is in the hundreds, not thousands, of dollars. The increase in the luxury car tax for the lowest cost Toyota Prado models are $39 and $98. For the Ford Territory Ghia, the increase is $496.

Of the five Toyota Tarago models, only one attracts the luxury car tax. Of the three largest selling people mover brands, this is the only model that will be impacted by the tax increase. The price increase is just over one per cent.

In closing, I would say again that if everyone pays their fair share, and we plug the gaps in the system, we can reduce the overall tax burden imposed on working families.

I commend the bill to the House.

Debate (on motion by Mr Turnbull) adjourned.