A new free trade agreement between Australia and the European Union (EU) is expected to be signed off next week when Prime Minister Anthony Albanese hosts European Commission President Ursula von der Leyen.

Under the new free trade deal, the current 5 per cent tariff on goods imported from Europe – including cars – will be axed in a reciprocal deal that will see tariffs dropped on goods exported from Australia. The deal is estimated to be worth around $10 billion a year to the Australian economy.

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Writing in the Australian Financial Review this week, former Trade Minister in the Gillard Labor government, Craig Emerson, said, “With the removal of the 5 per cent Australian tariff on European imports, Australian consumers and businesses also stand to benefit through improved access to a wider variety of high quality and competitively priced goods from the EU.

“Australian tradies and buyers of European vehicles also stand to benefit from a deal, through the elimination of 5 per cent tariffs on these imports.”

Dropping the 5 per cent on European imports should result in lower prices for a large swathe of new car buyers. In the first two months of 2026, Australians bought a total of 15,828 cars imported from Europe, or around 9 per cent of the total market.

The abolition of the five per cent tariff on European cars is separate from the Luxury Car Tax (LCT) which is also expected to be renegotiated, resulting in further price reductions for cars imported from Europe. As reported by Whichcar by Wheels earlier this month, the LCT threshold is likely to be raised from around $80,000 to at least $100,000.

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The LCT is currently set at 33 per cent for every dollar above a certain price threshold in two distinct categories, based on fuel consumption. Vehicles that use less than 3.5L/100km (such as EVs, some hybrids and plug-in hybrids) only attract the LCT once over the $91,387 threshold. For vehicles that consume more than 3.5L/100km (most traditional internal combustion engine cars, in other words), the LCT threshold is lower at $80,567.

Prime Minister Albanese and President von der Leyen will meet in Australia next week where they are expected to sign off on the new free trade agreement.