EU demands Australia scrap taxes on European cars

European-made cars could have their prices slashed by up to 38 percent under a new trade deal with Australia if EU trade negotiators get their way.

Slashing the 5 percent duty on imported luxury cars and the 33 percent Luxury Car Tax (LCT) on the more expensive models has been a key demand in the negotiations, according to a senior EU trade negotiator currently visiting Australia.

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Cornelis Keijzer told Nine Media that Australia had agreed to discuss the removal of the automotive taxes.

Speaking in Melbourne, Keijzer said that the EU’s push for the removal of both taxes was "one of the key demands on our side".

"You have all these taxes on top of each other, which is exactly the problem," he said.

The EU’s Head of Trade and Economic Section reckoned the five percent import tax is likely to go, but while the Australian government said the Luxury Car was on the table “they've not made any concession on this so far”.

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He pointed out that while European cars were slugged with a tariff, “all the other car exporting countries already have agreements with Australia so their exports enter at zero”.

Keijzer conceded that the LCT applies to US and Asian-built vehicles; however, it mostly affects European manufacturers and so acts "as an extra customs tariff".

The Federal Chamber of Automotive Industries (FCAI) has long supported the immediate scrapping of the import duty on European vehicles, as well as the LCT, as part of any trade negotiations, and to create a level playing field for all vehicles regardless where they are manufactured.

Not surprisingly, FCAI chairman Tony Weber shared Keijzer’s views on the LCT.

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"It's a tax on a tax. We have the car, we have the GST, we have stamp duty, and then on top of all those, we have the luxury tax,” Weber said.

“It's a tax on families, it's a tax on safety, it's a tax on technology, it's a tax on emissions. It is a roadblock to our FTAs. It's a drag on our market, and there's also a question at the state level whether it's constitutional."

Weber said his organisation was in discussions with the Europeans and the UK about putting it on the agenda through the free trade agreements.

This isn’t the first time it has been suggested that the LCT could go as part of a new trade deal with Europe, though it is encouraging to hear it come from the European side of the negotiating table.

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Last April, former Australian trade minister and deputy chair of the European Australian Business Council, Simon Crean, said that axing the import tariff is an inevitable consequence of the free trade agreement.

“As for the luxury car tax, I think the Europeans will continue to make that case [for it to be abolished], and I think they have got a strong case in that ­regard,” Crean said.

He added that it would be unlikely the tax would be immediately abolished in its entirety, adding that the preference is for it to be phased out over three years to prevent what he calls a “buyer’s strike”, resulting in a temporary sales decline until LCT’s axing takes effect.