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The Full Cost of Motoring in Australia

Jun 17, 2013

If you drool as you compare cars online, you'll want to know the full extent of what you'll have to pay. Cars in Australia are subject to a variety of taxes.

Owners must pay a Motor Vehicle Tax that costs $177 for a medium-sized car and $205 for a large one in New South Wales. A registration transfer fee must also be paid, which is $24 in New South Wales. States levy a tax on the purchase price of cars – vehicle registration duty, known as rego - which varies with the value of the car. Third party insurance at the very least is required under pain of prosecution, costing $300 a year in the case of Western Australia. Road cameras can detect cars lacking evidence of insurance.

The Luxury Car Tax

Perhaps the most striking phenomenon associated with cars and taxes in Australia is the Luxury Car Tax (LCT), which was introduced by the Howard government on 1 July, 2000 and makes Australia one of the most expensive countries in which to purchase such a nice vehicle. Australians must pay around $20,000 more for a BMW 320d than do Britons – a premium of almost 50 percent.

The tax was originally 25 percent but rose to 33 percent under the Rudd government in 2008 amidst great controversy. It applies to vehicles worth more than $59,133 in the case of standard cars and $75,375 in the case of fuel efficient cars, excluding the Goods and Services Tax (GST). http://www.motoring.com.au/ reported that demand for fuel efficient vehicles had consequently risen.

Luxury cars such as Bentleys are subject to the Luxury Car Tax.

Richard Dudley, chief executive of the Motor Trade Association of Australia, said that a family with six children might require a Tarago and find itself above the tax's threshold. The proportion of vehicles affected was a mere 2.5 percent in 1979 but 11 percent in 2010, while the number of people who fall victim has been static.

Why the LCT is unfair

The LCT is inequitable horizontally: it's the only tax imposed upon luxury goods or services, so cars are taxed, but not yachts, fur coats, hyper-expensive wristwatches or diamonds, also the preserve of the wealthy and once prey to the Wholesale Sales Tax. As such, the tax discriminates against people of a particular taste. Neither is this tax equitable vertically: it's a regressive tax - rich people pay a smaller proportion of their income. In the United Kingdom, people took to the streets in response to what was called the Poll Tax because it was vertically inequitable, which contributed to the downfall of the Prime Minister, Margaret Thatcher.

Senior executives within Toyota and Porsche and former treasury secretary, Ken Henry, are among those who have called for the LCT to be scrapped.

And GST, too

GST is also unfair: it applies to dealers but not private sellers. Private sellers need not provide the same level of consumer protection as a licensed dealer, putting the latter at a further disadvantage.

Chin up

There is at least one consolation when it comes to cars and tax in Australia. Contrary to myth, motorists don't pay more in taxes than is spent on roads: the country's road system costs $52bn a year to maintain, while only $35bn is collected from motorists as taxes and other charges. There is a “road deficit” of a minimum of $17bn year. And this excludes the other costs that arise from car use: reduced neighbourliness, reduced independence of children, traffic congestion estimated to cost around $15bn a year and obesity.

Tags: Accountant SydneyFBTGSTPersonal tax

Author: Steve Robinson

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