09 Jul The grand auto theft should stop
James Paterson — The Australian Financial Review — 9 July 2018
The next domino to fall in the Turnbull government’s tax-reduction agenda should be to end outdated taxes on motor vehicles.
Many Australians would be surprised to learn they are still paying over $1.1 billion in taxes each year that were designed to protect an auto industry that no longer even exists. Removing them will not only benefit consumers, it will also make our roads safer.
The Coalition’s comprehensive free trade agenda since 2013 has not just opened new export opportunities for Australian companies, it has also slashed tariffs for consumers purchasing imported goods. But even after striking agreements with China, Japan, Korea and the TPP nations there remains a significant protectionist measure that deserves the government’s attention: the 5 per cent tariff on passenger motor vehicles, which applies to all cars imported from countries we don’t have a free trade agreement with.
Imposing protectionist policies like import taxes are never a good idea. They may benefit a particular industry over the short and medium term, but this benefit comes at the expense of all Australian consumers who are not only forced to pay higher prices but are also deprived of the benefit of a truly competitive market, often leading to inferior options. It also leads to the protected industries becoming inefficient and uncompetitive over the long term.
That’s when there’s an industry to protect. Without one, the idea of imposing tariffs is simply absurd. Yet this is effectively what Australia has been doing by leaving in place a tariff on passenger motor vehicles, despite our mass market car making industry closing up shop late last year.
To be fair, approximately two-thirds of new cars imported into Australia are tariff free today – coming from major suppliers in the US, Japan, Korea, and Thailand, all of whom we free trade agreements with.
But this still leaves one third of all new cars sold in Australia subject to a 5 per cent tariff – which on average is $1900 per vehicle. In 2017-18, this came at a cost of $470 million. This is inevitably paid by Australian consumers, either in the form of higher prices or through fewer features in the cars they buy.
Ironically, the continued existence of the tariff is particularly harmful to one company is was once perhaps designed to help: Holden.
Despite their last Australian-made car rolling off the assembly line last October, Holden still conducts approximately $90 million worth of research and development in Australia – helping to support an ecosystem of approximately 230 companies that provide parts, material, and services.
But Holden currently faces $45 million per year in tariff costs because three of their most popular vehicles are subject to the tariff, with a $1200 duty on the German-built Commodore, a $1000 duty on the Mexican-built Equinox, and an $850 duty on the Polish-built Astra – Australia’s second most popular vehicle.
Holden are far from the only company impacted. Audi, BMW, Ford, Renault, and Volkswagen are just some of the other companies that each have multiple vehicles subject to the tariff.
On top of the 5 per cent tariff, many new cars are also subject to the Luxury Car Tax – a 33 per cent tax on the portion of a new car’s cost that is above the $65,000 threshold (or $75,000 for fuel efficient vehicles).
The Luxury Car Tax wasn’t explicitly introduced as a protectionist measure. But it is unlikely to be a coincidence that, given the level it cuts in, it has almost always only applied to imported cars. For example, as recently as 2014, industry estimates indicated that 94 per cent of the vehicles subject to the Luxury Car Tax were imported. This is why it likely to be an issue in free trade negotiations with the European Union, who rightly view it as false tariff.
In 2017-18, the Luxury Car Tax cost Australians $650 million. This means that, when combined with the 5 per cent tariff, Australians are being hit with over $1.1 billion in taxes designed to protect an industry that no longer even exists.
Removing these protectionist policies would obviously benefit Australian consumers, who stand to save thousands on their purchases. But it would also help make Australian roads safer.
Currently, the average Australian vehicle is 10 years old. According to analysis by the Australian Automobile Association, lowering this average by just one year would save 1377 lives over a 20-year period. It would reduce crashes by 5.4 per cent, leading to 44,000 fewer hospitalised injuries and a staggering 262,000 fewer non-hospitalised injuries. Put simply, this is because newer cars are safer.
Abolishing the 5 per cent tariff on passenger motor vehicles and the Luxury Car Tax would not only benefit Australians financially, it would also make our roads more safe. The lack of a local car manufacturing industry means there is even less reason to keep them.
This article originally appeared in The Australian Financial Review.