Prime Minister Anthony Albanese today announced a new free trade agreement between Australia and the European Union, with big changes that will impact the new car industry – and Australian buyers.
According to the federal government, negotiations have resulted in the introduction of a new category under the Luxury Car Tax (LCT) for zero-emission vehicles, with the tax threshold set at $120,000.
Under current rules for the 2025-26 fiscal year, fuel-efficient vehicles – including all cars with a combined fuel consumption of less than 3.5 liters per 100 kilometers and zero-emission vehicles – would be taxed at 33 percent for every dollar over $91,387.
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In addition, the new trade deal will also see the removal of a general tariff of five percent on all European cars imported into Australia, resulting in cheaper models from the bloc – regardless of powertrain.
However, it is not just European car manufacturers who will benefit from this, as the new LCT mandate will extend to all electric vehicles (EVs).
“Removing the five per cent tariff on EU-sourced vehicles will improve affordability and increase competition in the Australian market,” said James Voortman, CEO of the Australian Automotive Dealer Association.
“While there are some benefits to introducing a higher LCT threshold for electric vehicles, it is a minor change that only affects less than one percent of vehicles sold and does not address the tax’s fundamental deficiencies,” he said in a written statement.
European Union negotiators are understood to have pushed for a complete scrapping of the LCT, it is said Australian Financial Report.
Exact details of the comprehensive free trade agreement have yet to be published, but the government claims the agreement “means dealers and buyers of European vehicles will benefit from cheaper European cars”.
Under the free trade agreement between Australia and the European Union, the Australian government says 98 percent of the current value of Australia’s exports will now enter the EU duty-free, with tariffs eliminated on almost all agricultural products and tariff rate quotas expanded for various exports such as beef and rice.
There will also be no import tariffs on “almost all” manufactured goods and mineral resources exported to the EU, while Australia will eliminate most tariffs on EU imports such as wine and chocolate.
While negotiations have concluded – having officially begun in 2018 – the agreement now faces formal ratification by Australian and European authorities before its implementation.
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