CARS:A new emissions-based tax regime will be applied to all new cars sold from July 1st. It replaces the current system, which is based entirely on engine size.
The new seven-band system will apply rates varying from 14 per cent for cars with emissions of less than 120 grammes of CO2 per kilometre, rising to 36 per cent for cars emitting more than 226g/km.
During his Budget speech, the Minister for Finance, Mr Cowen, said that while higher-emitting cars will pay more, "by making sensible and informed decisions, many families could see their VRT bills reduced".
"Since this measure is not aimed at raising money but rather to assist the environment, the intention is that it will be broadly revenue-neutral," he said.
The most significant consequence of the move is likely to be a growth in the sale of diesel engines, which in general have a lower CO2 level. Diesel cars currently represent 27 per cent of overall sales, but these are expected to be closer to 50 per cent by 2009, when the full effect of the new tax regime will be seen. Larger petrol engines are likely to suffer under the new regime.
SUVs were not directly targeted in the Budget, although they will incur higher penalties due to greater emissions levels. Land Rovers, for example, are likely to see price rises of between 2.5 per cent and 9 per cent, according to the company.
The Minister for Finance also announced a six-month continuation of the 50 per cent tax rebate on biofuel and hybrid cars, although this will be removed when the new CO2-based system comes into effect in July. It will be replaced with a single rebate of up to €2,500 per car.
Mr Cowen also removed all VRT payments on electric cars and motorcycles.
The Automobile Association (AA) welcomed the changes, saying VRT in general was "far too expensive", and the Government had taken into account "completely" its submission on how the tax should be tiered.
"At least it is now calculated more sensibly," AA public affairs spokesman Conor Faughnan said. "While the AA feels that the changed system will make cleaner cars relatively less expensive and will see more motorists choosing diesel engines, it is nevertheless the case that VRT makes Ireland one of the most expensive countries in Europe to buy a car."
Cyril McHugh, chief executive of the Society of the Irish Motor Industry (SIMI) also welcomed the significant reductions in VRT for more environmentally-friendly vehicles.
Fine Gael's environment spokesman Phil Hogan said the VRT announcements should have been introduced last year when a change in new car tax was first promised.