THE CHANGE to emissions-based taxation in July 2008 was meant to encourage the purchase of cleaner cars. It worked brilliantly. In 2007 the majority of new cars sold had emissions ratings of between 156g/km and 170g/km. By 2010, sales of cars with emissions of below 121g/km increased 997 per cent.
Yet the overhaul of taxation coincided with recession. Overall, new car sales between 2007 and 2010 dropped by 52 per cent. There was an almost total flip from petrol engines to diesel ones and last year almost 77 per cent of the new cars sold had emissions of less than 140g/km. The Vehicle Registration Tax (VRT) on new car sales during the same period decreased by €674 million. So far in 2011, more than 90 per cent of new car sales fall into the two lowest tax bands. Our motoring is cleaner, greener but the public purse is suffering as a result.
It has also brought other problems. Owners of cars bought pre-2008 are paying substantial motor tax on, in some cases, reasonably clean cars, and the value of cars carrying such high annual tax bills has been decreased.
A Department of Environment spokesperson told The Irish Times:"In the context of a forthcoming Motor Tax Bill, the Minister is reviewing the taxation classes currently in place for motor vehicles." The bill is at an advanced stage of drafting, he said.
The appetite for car buyers to switch to cleaner cars was fuelled primarily by the chance to pay lower tax, but the previous government perhaps underestimated the speed with which these cars would become available.
So far in 2011, 1,854 BMW 520d diesels have been sold with motor tax of just €156. A surge in sales of large premium family saloons clearly wasn’t what the government had in mind.
As a result, some in the industry are speculating that a new system will tax cars based on not only their emissions, but also on the physical space they take up, or even their value. But should the owners of more prestigious luxury vehicles be punished further?
Michael Nugent, sales director of BMW Ireland, understandably doesn’t think so. “We believe the current system is fair and equitable in that it rewards manufacturers and customer for producing and purchasing the most emission efficient vehicles. The industry and the consumer have adapted to this system by now and residual values (used car prices) have settled accordingly. The best way to increase revenue is therefore to keep the current structure and adjust the rates.”
Ford Ireland’s chairman Eddie Murphy hopes that if there are any changes then they will not be introduced with immediate effect. “My understanding would be that the Government would revisit the motor tax and VRT parameters before 2013 and my hope would be that it would not be until then.”
It may be more hope than expectation, for while the details have yet to be made clear, the motor trade is expecting a revamp. Its future experiences of Budget days may not be so positive.
