Why are cars so expensive in Australia?

Most Australians are familiar with having to pay a bit more for some goods and services than they would elsewhere around the world. In the case of cars, this can be partially attributed to the higher cost of importing and manufacturing, but also to tougher regulatory and environmental conditions, as well as taxes and tariffs.

Are cars actually more expensive in Australia? 

According to the Federal Chamber of Automotive Industries (FCAI), based on a like-for-like comparison conducted in 2014, “the vast majority of new cars are comparable or cheaper in Australia than overseas.”

“Australia has one of the most competitive new car markets in the world, with 67 brands and over 350 models competing for 1.1 million new car sales each year. That competition helps give Australian consumers a better deal.”

The FCAI study noted that cars sold in Australia typically have different specifications than those sold in other right-hand-drive markets, such as Japan and the UK. For example, cars in Australia are more likely to have heavy-duty suspension, cooling systems and transmissions to better enable long-distance travel and towing trailers.

However, Australia’s present-day car market is different to what it was in 2014. COVID-19 and the war in Ukraine reduced the supply of new cars in Australia by limiting the supply of components such as microchips, and by disrupting supply chains. This in turn increased demand for used cars in Australia, with natural disasters such as flooding also reducing the nation’s available supply, pushing up the price of used cars.

What taxes do Australians pay on cars? 

The FCAI study noted that the affordability of Australian vehicles is affected by exchange rates, taxes and tariffs.

Some of the taxes that can affect the total cost of a car include:

• Customs Duty: According to the Australian Border Force, goods you import into Australia require classification under the Customs Tariff Act. Duty is payable on the customs value of your good at a rate determined by the tariff classification of your goods.
• Import tariff: Importing cars from overseas can cost around 5% of their value, though this may vary depending on their country of origin
• Goods and Services Tax (GST): Like other goods and services in Australia, this tax costs 10% of a car’s value
• Luxury Car Tax (LCT): According to the Australian Taxation Office (ATO), once an imported car’s price crosses a certain threshold ($71,849, or $84,916 for a fuel-efficient vehicle as of FY 2022-23), LCT comes into effect, costing 33% of the car’s value.
• Stamp Duty: When a car is bought or sold, the state or territory government may charge transfer duty or stamp duty, the cost of which could vary by state or territory, as well as the sale price.

These taxes and tariffs can raise the price of some car purchases in Australia, with high-end luxury cars among the most likely to be affected, due to the LCT.

What about Electric Vehicles (EVs)? 

Electric Vehicles (EVs) and hybrids are notably expensive vehicle options in Australia compared to petrol cars. As well as being affected by many of the same factors as petrol cars, such as the LCT pushing up the price, EVs have also been affected by relatively little investment in EV infrastructure in Australia, as well as fewer government incentives. And as well as having to pay a higher price for an EV, Australians wanting to drive one have had to bear the cost of adding an EV charger and battery to their home.

However, that may be starting to change, thanks to various new initiatives being rolled out. For example, the NSW government is trialling turning power poles into public EV chargers, and the ACT is banning the sale of new petrol cars from 2035. The ACT isn’t the first government to institute a ban, with the EU, UK, China, Japan, Canada and Norway governments all having a timeline in place to phase out petrol cars in favour of electric models.

It is expected that the resolution of supply chain issues and a global shift away from petrol cars should see the price of EVs fall over time.

How can you afford a higher-priced car? 

If you want to buy a new or used car but don’t have the cash on hand to afford the current prices, there are finance options available for you to choose from.

As well as dealer finance, you could consider a car loan from one of Australia’s banks and alternative financial institutions. Checking your credit score can give you a better idea of what you may expect – generally, the better your credit score, the lower the car loan rate you may be eligible for. It’s important to compare car loans before signing on the dotted line, as there’s often more to a car loan than just a low interest rate.

And if you’re considering an EV or hybrid, green car loans often offer discounted interest rates for the purchase of energy efficient vehicles.

It may also be possible to purchase a car by refinancing your home loan, which could let you borrow more money, or access your equity with a home equity loan or a line of credit.

Compare car loans in Australia