Early last year, when the fear of a global recession was at its highest, the Government was quick to put a stimulus program into place to support the contracting consumption. Of note was the First Home Buyers grant, and the investment tax allowance that included the purchase of cars. We now are in the middle of a housing boom, and of course, the sale of cars boomed.

I was looking to purchase a new car recently, and realized how many levels of tax are levied on this purchase, comprising taxes on taxes on taxes, that highlighted the Governments urgency in maintaining consumption.

For example, lets say the manufacture's base cost, of what would be deemed a luxury car, is $70,000. The initial tax is customs import duty of 5%, which was reduced from 10% earlier this year: $3,500.

GST of 10% is levied on the cost and the customs import duty: $7,350.

Luxury Car tax is levied on the cost, Customs Duty and GST: $7,101

State Stamp Duty (Victoria 4%) is levied on the cost, Customs Duty, GST, and Luxury car tax: $3,518

Total Cost: $91,469 or 30.7% in consumption taxes. The tax scales toward 50% as the cost of the car rises. If you finance the car with a 50% residual after 4 years, at an interest rate of 9%, you need to pay $25,000 in interest payments. Of course the costs of the car is after you pay your marginal income tax rate.

What started out as a $70,000 purchase, ends up requiring you to earn $180,000, pay your marginal tax rates, your interest, and various layers of tax. Consumption is certainly a wealth hazard, but a necessary ingredient in our leveraged economy.