Senator Cory Bernardi has called on the Federal Government to abolish tariffs on imported cars, following the closure of the Australian car industry. Bernardi estimates that the Government is collecting upwards of $1 billion in levies from new-car buyers each year. However, Senator Nick Xenophon believes there is merit in retaining some degree of tariffs, but that most of the monies raised from them should be invested in a fund to support advanced manufacturing. From The Australian:
Senator Bernardi said despite the sad end to carmaking in Australia, the commonwealth continued to impose tariffs on consumers.
“The tax burden includes an estimated $1000 on popular cars such as the Ford Ranger, Ford Focus, Toyota Corolla, Mazda 2, Honda Civic, Jazz and CRV, and an estimated $1300 on the Toyota Hilux, Mitsubishi Triton, Holden Colorado and Nissan Navara,” he said. “There is no basis for retaining protections for a non-existent automotive industry. The government needs to ease the burden on Australian car purchasers.”
Senator Xenophon said consumers could benefit with some reduction in tariffs, but that a significant portion of tariff revenue could be directed into a fund used to support advanced manufacturing, research and development, and skills training…
However, Finance Minister Mathias Cormann said the government had no plans to change the tax arrangements. Scott Morrison did not respond to a request for comment. Budget papers show that car tariffs, including the Luxury Car Tax and the Excise and Customs Duty on Passenger Motor Vehicles, will raise $1.12bn this financial year rising to $1.28bn in 2020-21…
In December, South Australian Treasurer Tom Koutsantonis called for the abolition of tariffs on all imported vehicles at a COAG meeting of treasurers. “These tariffs were rightly implemented to support jobs in automotive manufacturing, but … it is hard to justify continuing to raise revenue from Australians through these taxes,” he said.
I’m with Senator Bernardi on this issue. With the local automotive industry gone, there is no longer any justification for punishing Australian consumers with over-inflated car costs.
Moreover, Australia has lowered or eliminated automotive tariffs with its various free trade agreement partners, which has created efficiency distortions via trade diversion (i.e. when trade is diverted from a more efficient exporter towards a less efficient one). Removing tariffs on automotives for all trade partners would eliminate these distortions.
That said, eliminating tariffs is only part of the solution to lowering car costs for Australian consumers. Other worthy measures include:
- allowing the importation of high quality used cars (so-called ‘grey imports’), such as occurs in New Zealand;
- scrapping the the luxury car tax, which is set at 33% on the marginal cost of vehicles above $60,316, and serves as a defacto tariff designed to raise the cost of more expensive imports and make local models, such as the Fairmont Ghia, more attractive; and
- Scrapping Australia’s unique technical standards in favour of global rules, thereby opening the market to a wider array of foreign cars and reducing overall import costs. Indeed, the PC report also recommended accelerating “the harmonisation of Australian Design Rules with the United Nations Economic Commission for Europe (UNECE) Regulations and the mutual recognition of other appropriate vehicle standards”.
While there would obviously be negative revenue impacts from the above reforms, namely the abolition of tariffs and the luxury car tax, such concerns could be overcome by broadening the tax base through genuine tax reform. This way, the tax burden would be spread more evenly across the economy rather than concentrated on the car industry – a far more efficient and competitively neutral outcome.
Again, given the car assembly industry has closed, the least the government can do is soften the blow on consumers and increase their spending power.
