A tax “loophole” is incentivising Australians to purchase gas-guzzling “dumb” utes over fuel-efficient hybrids or electric vehicles and costing the government $250 million each year, according to a new report.
The Australia Institute’s report into the Luxury Car Tax (LCT) found that a lack of a requirement to prove a vehicle will be used for a commercial purpose means that buyers of large, American-style utes are receiving more favourable tax breaks than those purchasing electric vehicles.
And this tax loophole cost Australian taxpayers $250 million last year alone, according to the report.
“The Australian public is subsidising big, dumb utes by hundreds of millions of dollars each year,” Australia Institute research director Rod Campbell said.
“These vehicles are damaging roads, reducing safety and increasing emissions, yet they are given a massive tax break.”
The LCT was introduced in 2000 by the Howard government, in part to help support the local car manufacturing industry which is now non-existent.
It applies to the purchase of overseas cars worth more than a set threshold, which was $81,000 in the last financial year, with a rate of tax of 33 per cent applied to the value of the car above this threshold.
But the “loophole” is found in an exemption from this tax for a “commercial vehicle designed mainly for carrying goods and not passengers”.
The scheme does not require buyers to prove that the car they are buying is for commercial use rather than personal use, but just that it can carry twice the weight in payload than it can in people.
This means that nearly all dual-cab utes for sale on the market qualify for this and are exempt from the LCT, whereas electric vehicles are subject to it, albeit with a higher threshold.
“This loophole incentivises people to buy expensive utes instead of expensive smaller cars, including fuel efficient and electric cars,” the Australia Institute report said.
Compare the pair
The report compared two similarly priced vehicles: the $133,370 2024 Mercedes-Benz E350 EQ Hybrid and the $138,000 2024 Chevrolet Silverado 1500 ZR2.
It revealed that while the more sustainable hybrid car is cheaper initially, because the LCT is applied to it and not the large ute, the Mercedes will end up costing about $11,000 more.
This is despite the Chevrolet vehicle having a fuel economy of 14.5L per 100km, more than twice the current fuel-efficient car definition.
“Economics 101 says that governments should tax things they want less of, and subsidise things they want more of, and it is stunning that the Australian government seems to want more big, dumb utes,” Campbell said.
“Big utes impose considerable costs on society, whether it’s safety concerns or the impact on our roads and climate.
“Removing the luxury car tax exemption for these vehicles is a good first step in accounting for these costs.”
Push for more EVs
The transport sector accounts for about 21 percent of Australia’s emissions, and the federal government has a stated aim of rapidly increasing the uptake of EVs.
But it has run into issues when it comes to larger vehicles such as the utes in question in the report.
The government earlier this year amended the legislation to define some four-wheel drives as light commercial vehicles rather than passenger cars.
This means they will be subject to less stringent fuel efficiency standards.
Through the standard, the government is aiming to reach a 60 per cent reduction in average new car emissions by 2029, and has set a cap on the average emissions per kilometre for new cars sold for each manufacturer in Australia.
On top of the LCT “loophole”, EVs are also far more expensive in Australia than many other comparable jurisdictions.
Recent analysis by former ACCC chair Allan Fels found that Australians are overpaying for EVs by about $9000.
