A tax increase of up to 35 cent per litre on petrol and diesel, levies based on road usage and congestion charges are among proposals in today’s report from the Commission on Taxation.
A carbon tax of 5 cent per litre on petrol and diesel and the replacement of Vehicle Registration Tax (VRT) with a tax of 30 cent per litre on fuel and road pricing are the key proposals relating to motorists in the report.
It also proposes a focussed scrappage scheme to promote the purchase of electric and low-emission cars.
The report suggests a two-year timeframe for the introduction of carbon tax on fuel to allow consumers to adapt and reduce the impact.
According to the commission, any carbon tax: "should be visible at the point of final consumption, to help ensure that behavioural change aspects are maximized and it is not seen as 'just another tax'."
The report also proposes the replacement of the current VRT system with increased fuel prices and road pricing, including congestion charges. The scheme is aimed to be revenue neutral, but could see 30 cent per litre added to fuel prices. It suggests a 10-year timeframe for the changeover, in an effort to minimise the adverse impact in relation to the existing fleet of vehicles.
It estimates that the impact of switching from VRT to increased excise on petrol and diesel prices would require price increases of 30 cents per litre in order to maintain the tax yield.
In terms of road pricing, it proposes that charges per kilometre can be levied according to factors such as time of day, location, distance travelled, real time congestion or vehicle type. It also suggests the introduction of congestion charges. "Experience in other countries suggests that a long lead-in time, with extensive consultation, is key to the successful implementation of road pricing," it states.
The commission accepts there will the several problems in changing the system but "we consider that the VRT system does not properly deal with the ongoing demands on the transport system and that it should, over time, be replaced by taxes on usage".
It argues that the 10 year changeover period would allow for a gradual increase in the price of fuel to preserve the tax yield.
The current VRT system was revised last year to take account of carbon emissions from new cars registered from July 1st 2008. It has already had a significant impact on new car sales, with the vast majority of new car buyers opting for smaller-engined and diesel models since the changes came into effect.
The commission's proposals are in line with an EU Directive in 2005 that supported the abolition of registration taxes in favour of usage taxes with a CO2 element. This directive was opposed at the time by several states, including Ireland.
Finally, the report also proposes the introduction of a "focused scrappage scheme" targeted at encouraging a switch to the purchase of electric and very low carbon emitting vehicles. It suggests the introduction of incentives for motorists who trade-in cars that are over 10 years old and replace them with new low-emission models. It would, however, operate for a limited time period.
