Jan McLucas (Queensland, Australian Labor Party, Parliamentary Secretary to the Minister for Health and Ageing) Share this | Hansard source

I thank all honourable senators who have made a contribution to the debate on the Tax Laws Amendment (Luxury Car Tax) Bill 2008 and related bills. The increase in the luxury car tax rate from 25 per cent to 33 per cent to apply on and from 1 July 2008 is an important part of the government’s budget. The revenue raised from the increase in the luxury car tax will contribute to a strong cash surplus for 2008-09 of $21.7 billion or 1.8 per cent of GDP.

The measure is expected to raise over $500 million in additional revenue over the next four years. It is part of a substantial surplus, which acts as a buffer against global difficulties and gives us the flexibility we need in uncertain global times. We know that eight rate rises in just over three years have also hurt families badly and that the effects of these rate rises combined with global problems are also slowing our economy. That is why we have been responsibly addressing the domestic inflation that we inherited at a 16-year high, now made worse by global factors.

The luxury car tax increase will not increase the burden on working families. The measure also recognises that Australians who can afford luxury vehicles have a greater capacity to contribute to revenue and that if everyone pays their fair share of tax we can reduce the overall tax burden imposed on working families. While the government tried to get the amending legislation passed before the start date of 1 July 2008, the Senate referred it to the Senate Standing Committee on Economics for report not before 26 August 2008. That committee reported on 28 August with the recommendation that the Senate pass the luxury car tax amending bills.

I draw honourable senators’ attention to how the Senate economics committee report has discredited some of the myths of the luxury car tax. For example, it has been argued that luxury cars are more fuel efficient than other vehicles and so the luxury car tax effectively represents a tax on fuel efficiency and, ultimately, the environment. Like cars below the threshold, the fuel consumption of luxury vehicles varies considerably. Some luxury vehicles consume significantly less fuel than the average. The size of the engines fitted to luxury vehicles and their generally heavier weight means that most consume more fuel per kilometre than cars below the threshold. The Senate report shows that the median fuel consumption for cars under the luxury car tax threshold is less than nine litres to travel 100 kilometres while the median for models subject to the luxury car tax is more than 10 litres.

However, this means there is some scope to encourage the purchase of the most fuel efficient vehicles through the luxury car tax. This is reflected in the amendments to the bills that have been foreshadowed and that the government will move today. The amendments allow luxury cars with a fuel consumption of less than seven litres per 100 kilometres to use a threshold of $75,000 in 2008-09 instead of the $57,180 threshold applying to less fuel efficient vehicles. This means that the vast majority of cars currently available which meet the fuel consumption criteria will no longer have to pay any luxury car tax while others will pay significantly less. More broadly, the Treasurer will refer the Greens preferred approach of phasing out the luxury car tax and phasing in a tax on vehicle fuel inefficiency and consequent greenhouse gas emissions to the Henry tax review for consideration. The Treasurer will also refer luxury car tax and fringe benefits tax for car issues to the Henry review for consideration, which I understand are the concerns of Senator Xenophon. I note in this regard that the government has asked the Henry tax review to consider the interactions of the tax system with the Carbon Pollution Reduction Scheme.

Additionally, there have been comments about how vehicle safety, as well as large families and rural communities, will be affected by the luxury car tax increase. The report concludes that there are many comfortable, safe new vehicles, not to mention second-hand vehicles, available that are well priced under the current luxury car tax threshold, including vehicles with four-wheel drive and other features required by drivers in remote areas.

A dissenting view was put forward on behalf of coalition senators. Broadly, the dissenting view recommended that the luxury car tax increase be opposed in the Senate. I thank Senator Xenophon for his contribution to the debate on these bills. Senator Xenophon has raised concerns about the impact of the luxury car tax increase on contracts entered into before the budget where the vehicle could not be delivered before 1 July 2008. The government would like to indicate that it is open to this proposal. This issue has also been raised by several coalition senators. They have sought to bolster their case with arguments put forward by the car industry on the uncertainty associated with the fact that the bills were not passed before 1 July 2008. The 1 July 2008 start date was announced in the budget and set out in the amending legislation that was passed by the House of Representatives on 28 May. I note that some of the difficulties currently being faced by suppliers of luxury cars have occurred because the Senate chose to refer the amending bills to a committee rather than deal with them before 1 July.

The luxury car tax has broadly remained unchanged since its introduction in 2000. There have been few, if any, complaints raised in this chamber about its operation. This is probably because, as the Senate committee notes, the luxury car tax is a progressive tax which is relatively easy to collect. However, the opposition has decided to stand up for lower taxes for luxury cars rather than lower interest rates for working families who are doing it tough. The government now knows where the opposition stands on responsible budgeting. The government now knows that those opposite do not understand that there is an inflation challenge. We have had to take the tough decisions to fund long-term investment in the infrastructure, education and training, and health and hospital needs of our nation.

Unfortunately, those opposite do not understand that you cannot keep spending without knowing where the money is coming from. Now they want to punch a $22 billion hole in the surplus that we need to fight inflation. We should not be surprised. Unfortunately those opposite are absolutely addicted to the type of reckless spending that has given Australia an inflation problem. They cannot resist a good $22 billion raid on the surplus. Old habits die hard. I take this opportunity to challenge those opposite to change their ways. I challenge them to say which programs would be cut to pay for their $22 billion raid on the surplus. I challenge them to, for once in their political lives, choose economic responsibility over short-term political opportunism. I challenge them to support this responsible measure and join us in the fight against inflation. The government must retain the integrity of the budget surplus through the luxury car tax to buffer against uncertain times, to put downward pressure on inflation and to address the legacy of the big-spending ways of those opposite.

Question put:

That these bills be now read a second time.