The big winner from sales of luxury cars is not Porsche, Ferrari, Rolls-Royce or Mercedes-Benz – it's the Australian Government.
Shell out about $750,000 on the upcoming Ferrari 812 Superfast and you might envisage the small but dedicated team at the Maranello factory high-fiving over how much they've just pocketed from the sale of one of the most expensive (and fastest) cars on the market.
But the generous margin made by the manufacturer, distributor and retailer – the exact figures are a closely guarded secret – pales compared with how much our government tax departments pocket once the car hits Australian roads.
The real price of luxury
The biggest chunk of the purchase price is the luxury car tax, a controversial 33 per cent slug on every dollar above $64,132 (or $75,000 if the car uses less than seven litres of fuel per 100km).
The Federal Budget estimates LCT revenue will increase 7.9 per cent to $650 million due to "strong sales of vehicles subject to LCT".
In the case of the Ferrari 812, LCT will amount to about $144,000, roughly the price of a nicely kitted out Range Rover.
Then, of course, there's GST, a tax applied prior to the LCT but as a multiplier on stamp duty (more on that soon). Another $50,000 gone.
Want to actually buy the car? Then the states want their crack, too. In Victoria and NSW it works out slightly under five per cent of the price, so something in the order of $35,000 for the Ferrari.
There's also import duty, applied to cars imported from countries Australia does not have a free trade agreement. It's five per cent of the price the importer pays (something not disclosed). In the case of this Ferrari, let's guess it's somewhere around $15,000
All up almost $250,000 – a hefty 33 per cent – of that purchase price is swallowed by governments keen for their cut of a purchase few can afford but many aspire to.
Lining the pockets
Oh, and then you've got to register the car, which is another grand or so, depending on what state you live in.
Overall, the taxes on a luxury car can account for up to one third of the purchase price.
In the case of the Mercedes-Maybach S600 that means about $157,000 is going to the government.
And for Tesla's Model X – an electric car that can be charged with green electricity – some $76,292 goes to the government.
Even the Toyota LandCruiser – a car used by everyone from farmers and families to grey nomads towing caravans – can contribute more than $30,000 to government coffers.
Crying foul on Luxury Car Tax
Through the Federal Chamber of Automotive Industries, car manufacturers have been lobbying the government for years to remove the LCT.
Mercedes-Benz Australia senior manager of corporate communications, David McCarthy, is disappointed the issue wasn't raised in this year's Federal Budget.
"The government had an opportunity to make some small changes that really would have been less than a rounding error to send a very clear signal and a commitment to lowering vehicle emissions," says McCarthy, who argues there is very little incentive to buy electric and hybrid vehicles in Australia due to the price premium.
"Electric cars over the luxury car tax limit still attract luxury car tax; this can hardly be seen as encouraging electric vehicles."
Porsche Australia director of public relations and motorsport, Paul Ellis, says the government makes a lot more money on a 911 sports car than the retailer and distributor combined.
"The premium automotive segment is an easy cow for the government to milk because it keeps producing cream to top up the coffers," says Ellis.
Boats, helicopters, jewellery…
A luxury tax is unique to cars in Australia, one reason it is so controversial.
No other luxury good receives a luxury tax simply for being luxurious.
Spend $1 million on a diamond ring, for example, and there's not one cent of LCT.
Similarly, splash out on that helicopter to get to the country retreat and you won't kick a cent into the luxury tax coffers.
Boats, planes, furniture and art work – all things that could conceivably be classified as luxury items – are all exempt from a specific tax.
Taxing times could be changing
As the government desperately tries to balance the budget it's reluctant to go delivering tax cuts, especially to the wealthy that the LCT is aimed at.
But their hand could soon be forced.
Most luxury cars come from Europe, a region currently in negotiations with Australia about implementing a free trade agreement.
Luxury car makers, particularly those from Germany, are putting pressure on officials to ensure LCT discussions are included as part of an FTA.
With cars from Japan, Thailand, South Korea and the US – between them making up more than 70 per cent of the new-car market – exempt from the five per cent import duty, the EU negotiations are also likely to include discussions to scrap that, too.
Indeed, there seems little reason to maintain an import duty, which was designed to protect the local industry – an industry shutting down on October 20 when Holden closes its South Australian factory.
"Whilst I'm not a betting man, knowing the view of the EU on luxury car tax and import duty I can't see how the EU would agree to a free trade agreement that allowed LCT and vehicle import duty to continue," says Mercedes-Benz's David McCarthy.
Oh, and in case you're about to pop in an order for that 812 Superfast, don't bother – such has been the popularity and forward orders it's all but sold out.
Next time, hopefully in more tax-friendly times.
Have a take on the government's continuance of a luxury car tax? Share your opinions in the comments section below.
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