Cars that could get cheaper in Australia with Europe free-trade deal

Mercedes-Benz GLC

New-vehicle pricing for more than 100 models currently on sale in Australia could be directly affected if a Free Trade Agreement with the European Union is finalised. 

Talks between Australia and Europe on a Free Trade Agreement (FTA) would result in the removal of a 5 per cent import tariff – which does not apply to vehicles manufactured in Japan, China, Thailand, South Korea or the United States – should the deal be locked in.

The agreement, which Federal Minister for Trade, Senator Don Farrell, said "was now close" to finalisation after talks with European Union leaders, is also expected to result in the gradual scrapping of the Luxury Car Tax (LCT), a 33 per cent levy on every dollar of a car's price above a set threshold. 

An LCT threshold of $91,387 applies to vehicles with a claimed fuel consumption of 3.5L/100km or less – including electric cars, which are already exempt from the 5 per cent import tariff if they are priced below the LCT limit. 

BMW X1

The LCT threshold for all other vehicles in the current 2025-26 financial year is $80,567. 

The deal would also benefit European-built vehicles from non-European brands, which also incur a 5 per cent import tariff, such as the Hyundai i30 N Hatch (Czech Republic), Mitsubishi ASX (Spain), Suzuki Vitara (Hungary) and Jeep Compass (Italy).

In theory, while the removal of a 5 per cent import tariff would reduce the cost of an entry-level, German-built Volkswagen Golf hatchback from $39,290 to $37,325 before on-road costs – a saving of nearly $2000 – carmakers would not be forced to pass all of the savings onto customers.

Volkswagen T-Roc

In addition, several volume-selling models from European brands would not be eligible for a tariff exemption because they are built outside the European Union. 

In contrast, several models from European brands are already exempt from import tariffs because they are built in countries with existing Free Trade Agreements, including the United States, Mexico, China and South Korea. 

Audi Q3

The Cupra Tavascan electric SUV is also manufactured in China, but it would still be exempt from import tariffs even if built in Europe if it remained under the LCT threshold. 

Volkswagen Golf

The 2026 BMW iX3 electric SUV would benefit from an FTA with the European Union, as the new-generation model, due in Australia this year, is built in a new electric-vehicle factory in Hungary, not China.

All car models, including vehicles built in Japan such as the Toyota LandCruiser 300 Series and Prado, would also benefit from the gradual scrapping of the LCT, which has been estimated to generate $1.15 billion in tax revenue for the Federal Government this financial year.

A Free Trade Agreement between Australia and the European Union will grant better access into Europe for Australian beef and dairy products, in exchange for the axing of the Luxury Car Tax.

BMW iX3

Volkswagen Tiguan

Mitsubishi ASX

Jordan is a motoring journalist based in Melbourne with a lifelong passion for cars. He has been surrounded by classic Fords and Holdens, brand-new cars, and everything in between from birth, with his parents’ owning an automotive workshop in regional Victoria. Jordan started writing about cars in 2021, and joined the Drive team in 2024.

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