Federal Treasurer Wayne Swan says it is fair that people who can afford to pay a higher tax on luxury cars help in the fight against inflation.
A tax hike of between 25 and 33 per cent on cars worth $57,000 or more is expected in next week's budget.
Mr Swan says he doesn't think it's unreasonable for those who did so well during the Howard years, with top-end tax cuts, to pay a little more for a luxury car.
However Shadow Treasurer Malcolm Turnbull says such an increase will flow through to other car sales and push up the cost of living.
While the Federal Chamber of Automotive Industries' Chief Executive, Andrew McKellar, says the tax is deeply unfair.
"To distort the market like this is quite unwarranted and unnecessary," he told LIVENEWS.com.au.
"I would point out that there is no equivalent tax on other luxury goods. So this single out one-sector and penalises import disproportionately."
Meanwhile, Mr Swan has announced a comprehensive review of the tax system is to be a major part of next week's federal budget.
The Treasurer says the review to be headed by Treasury boss, Dr Ken Henry, will look at all levels of taxation - federal, state and local.
The push for a review emerged from the recent 2020 Summit.
Mr Swan has told Channel Nine it has been a long time since the system has been closely examined.
“A modern economy needs a modern tax system,” he said.
Mr Swan says tax needs to be simpler, however there will be no increase or broadening of GST or changes to tax free superannuation.
But Shadow Treasurer Malcolm Turnbull says the review which will also have business and academic representatives is far from independent.
It is expected to be completed by the end of next year.