The abolition of Australia is controversial Luxury car tax (LCT) is still on the table as part of free trade agreement (FTA) negotiations with the European Union, which is expected to result in lower prices for European-made models.
The federal government expects the LCT to cost Australian new car buyers $1.21 billion in the 2025/26 financial year (July 1, 2025 to June 30, 2026) – but it could be scrapped as part of negotiations.
Prime Minister Anthony Albanese said last week in his speech at the G20 summit of world leaders in Johannesburg, South Africa, that he hoped the free trade agreement would be completed in the first quarter of 2026.
When Mr Albanese was asked by the media at the event whether the previous proposal to scrap the LCT for European cars was still part of the negotiations, the Prime Minister remained tight-lipped on the details.
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“I think we’ve done a pretty good job of not ruling things out or ruling things out at press conferences, but dealing with our partners in a respectful way,” he said, as reported on the website ABC.
“I think free and fair trade is very much in Australia’s national interest.”
Previous reports suggest that LCT dumping depends on the agreement on agricultural exports to the EU, which has been pushing for the abolition of LCT as part of negotiations since 2018.
Accordingly The AustralianAround 40 percent of LCT sales come from the sale of European cars.
The LCT was introduced in the mid-2000s under the John Howard-led federal government and replaced the wholesale tax on luxury vehicles. It was intended to protect the Australian automotive industry.
Vehicle construction ended in Australia when Holden And Toyota stopped local production of cars in 2017 ford had closed its remaining factories in Geelong and Broadmeadows a year earlier, in October 2016.
A review of Australia’s tax system in 2010 found that the LCT “could be viewed as discriminatory because it is the only Australian government tax applicable to the sale of goods or services that are considered luxury goods”.
“Luxury cars” have been subject to additional taxation in Australia since 1979 – at that time only two Australian-made models, the Holden Statesman and the Ford LTD, were above the $18,000 threshold.
After its introduction in 2000, the LCT rate was re-indexed annually and currently applies to vehicles priced at or above $80,567, or $91,387 for “fuel efficient vehicles.”
Vehicles with an official combined fuel consumption of 3.5 l/100 km or less are considered fuel efficient.
Buyers of cars subject to the LCT will pay 33 percent per dollar on the amount over the threshold – in addition to stamp duty, registration and other state/territorial legal road costs.
The Federal Chamber of the Automotive Industry (FCAI) has criticized that the LCT has become outdated since the end of Australian vehicle production and that it unfairly applies to a disproportionate number of vehicles, including, for example, all variants of the Toyota LandCruiser 300 series.
In a call for the removal of the LCT in 2023, the FCAI said in a statement: “It should be abolished. It is now just a handbrake on the industry delivering the best fuel efficiency and safety technologies to Australian consumers.”
A January 2025 Australia Institute statement on tax changes noted that the LCT is a factor in the increasing popularity of dual cabs such as the Toyota HiLux and Ford Ranger – with the two models topping the sales charts since 2015.
“While subways are necessary for a range of jobs, their proliferation, particularly of larger, heavier models, harms the environment, damages roads and imposes a range of other costs on society,” Greg Jericho, chief economist at the Australia Institute, said in the report.
“In 2024, every double-cab vehicle on the market was exempt from the luxury car tax without requiring the owner to prove that the car was purchased or used primarily for commercial rather than personal purposes.”
The free trade deal’s benefits for the EU include cheaper access to Australia’s rare earth minerals, which have increased importance after supply chain vulnerabilities with China led to production halts at Volkswagen factories in Europe last month.
Among the major automobile manufacturing nations, Australia currently has a free trade agreement with Japan, Thailand, China and Korea, and a free trade agreement between India and Australia is also being worked on.
According to a federal government paper, any free trade agreement with the EU should “drive Australian exports, economic growth and job creation”.
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