Australia’s EU Trade Agreement Could Make European Cars Cheaper
With discussions first launched in 2018, Australia’s long-awaited Free Trade Agreement (FTA) with the European Union (EU) was officially signed in March this year.
The agreement is yet to be finalised, with key elements pending decision. However, it’s likely to have an impact on the Australian automative market, particularly for buyers of European vehicles.
Source: European Commission
What is the Australia–EU Free Trade Agreement?
Australia and the European Union have spent several years negotiating The Australia–EU Free Trade Agreement. It aims to reduce trade barriers, improve market access and strengthen economic ties between both regions.
For Australian consumers, one of the most immediate and visible changes could be in the automotive sector.
Why European Cars Could Become Cheaper
In brief, one of the headline changes is the removal of the 5% import tariff on EU-built cars, alongside reforms to Australia’s Luxury Car Tax (LCT).
Together, these changes could reduce the price of some European vehicles and increase competition in the local market by:
- Making European vehicles more affordable and accessible;
- Shifting market demand for European vehicles; and
- Anticipated price drops may cause consumers to postpone purchases, affecting timing.
The Tariff Reduction, Explored:
Under the agreement, Australia plans to remove the existing 5% tariff on vehicles imported from Europe.
That tariff currently applies to many European brands, including:
- BMW.
- Mercedes-Benz.
- Audi.
- Porsche.
- Volvo.
- Volkswagen.
Removing the tariff may reduce import costs for manufacturers and dealers, potentially increasing savings for customers.
The Luxury Car Tax: Still Alive But Changing
The LCT is set to be kept, despite speculation it would be abolished entirely.
However, the LCT threshold for eligible EV’s is expected to increase to approximately $120,000. Higher than the current threshold, this may result in more affordable, premium European EVs.
Important Consideration
Whilst expected to benefit European manufacturers, the revised LCT treatment is looking to apply to all electric vehicles, regardless of origin. As a result, we may see changes to the wider Australian EV market.
All to say, the benefit may not just lie with European cars. Brands from the US, China, Korea, Japan and more may be applicable, potentially increasing savings and growth opportunities.
What is the purpose of the Luxury Car Tax?
To help protect Australia’s domestic car manufacturing industry, the LCT was introduced in the early 2000’s.
However, since local manufacturing by Holden, Ford and Toyota ceased years ago, many argue the LCT no longer reflects this original purpose.
With an evolving market, proponents have suggested that changes could reduce costs for consumers and improve vehicle accessibility.
Will Buyers Actually Notice a Difference?
Price reductions will ultimately come down to how much of the savings the importers and dealers pass on.
So, for buyers considering high-end European EVs, both lower import costs and reduced LCT could mean several thousand dollars in savings.
Potential Opportunities for Employers and Employees
The proposed removal of import tariffs and revisions to Australia’s Luxury Car Tax (LCT) may create new opportunities for employees and businesses alike.
With a potential increase in affordability, employees may have access to a broader range of vehicles through salary-packaged arrangements, while businesses may benefit from more cost-effective fleet solutions.
Lower vehicle costs, combined with existing tax incentives for eligible EVs, could make novated leasing an increasingly attractive option for both employers and employees looking to maximise value, reduce taxable income, and transition toward more sustainable transport solutions.
For businesses, now may be the time to review fleet strategies, financing structures, and potential tax advantages to stay ahead of a changing market.
What Happens Next?
The Agreement will enter into force when both Australia and the European Union have completed their domestic processes, and this can take time.
Nonetheless, this agreement may begin to lower the cost of some European vehicles, ease cost-of-living pressures for Australians, and prompt a gradual rethink of how Australia taxes luxury cars.
With the tax burden eased on premium EV’s, we may see an increase in competition for their combustion-powered rivals. To be sure, this represents a step in the right direction for a more energy-efficient, sustainable world.
Want to understand how these automotive reforms could impact your business or personal finances? Get in touch with your Aintree Group adviser for tailored advice.
This is general advice only and has not been prepared with your individual situation or needs in mind. For personalised advice, we highly recommend that you seek professional guidance from a qualified adviser.
