A new trade deal between Australia and the European Union (EU) could result in more affordable electric cars, according to a senior government diplomat. 

Trade Minister Don Farrell, who is currently in Europe to negotiate a deal with the EU, says Australia’s Luxury Car Tax (LCT) was on a list of demands from officials from the region, The Sydney Morning Herald reports. 

The LCT applies a 33 per cent tax on every dollar above the threshold for new cars, which is currently $71,849 for most vehicles, and $84,916 for fuel-efficient models – rising to $76,950 and $89,332 respectively from 1 July 2023. 

“One option for us to consider is to lift that ceiling for electric vehicles,” Minister Farrell said. 

“So that’s one area where I think we’re prepared to have some realistic discussions with the Europeans.” 

Any deal appears to ride on whether the EU is prepared to reduce barriers for Australian beef, lamb, and wine producers to sell in the region. 

Chief among the EU’s requests is that Australians stop calling parmesan cheese and prosecco wine by those names, unless the products were actually sourced from those areas in Europe – in the same way sparkling white wine can only be known as champagne if it is from the Champagne region of France. 

While most electric cars below the LCT threshold are manufactured in China, Japan, and South Korea, only a handful are from Germany, Sweden, and France – with the majority of battery-powered models above the LCT threshold made in Europe. 

Despite several tax reviews recommending the abolition of the LCT, the tax generates more than $700 million of revenue for the Federal Government each year, according to the report. 

If the trade deal is struck between Australia and the EU, it means luxury electric cars could become more affordable.