Low-emissions vehicles hit by tax hike

Motorists face increases in annual motor tax, rising fuel prices and a VAT increase as a result of today’s Budget.

Changes to the motor tax charges will particularly impact on buyers of lower emission cars. Cars with emissions below 120g/km will incur an annual charge of €160, up €56, while those with emissions between 121g/km and 140g/km will rise by €69 to €225. Every tax band, including electric bikes, has been increased.

New CO2-based motor tax rates

A € €160 – up €56

B €225 – up €69

C €330 – up €28

D €481 – up €34

E €677 – up €47

F €1,129 – up €79

G €2,258 – up €158

The increase in carbon tax to €20 per tonne is due to hit motorists at the pumps from midnight tonight, adding 1.4 cents to a litre of petrol and 1.6 cents to a litre of diesel.

The increase in VAT will mean that new car prices will rise from January 1st, something many in the motor trade had hoped could be avoided as the bulk of sales take place in the first two months of the year and many of these cars have already been ordered by customers based on prices that don’t include the 2 per cent rise. The VAT rise will also push fuel prices up when they come into force

The Minister also announced consultations with the motor trade for an overhaul of the current emissions-based regime, which the Government has already indicated will be announced in the next budget and come into force in 2013.

The changes to motor tax aim to combat losses to the State as new car buyers flocked to purchase lower emission cars to avail of reduced motor tax.

However, prior to the Budget, motoring and environmental groups criticised proposals to target the popularity of low emission vehicles.

The Consumers’ Association of Ireland said motorists who had gone out of their way to purchase greener cars were receiving a “slap in the face” from the Government.

The Automobile Association said the Government was likely to be accused of acting unfairly in choosing to increase taxes for recently bought fuel-efficient vehicles in the Band A and Band B categories.

“This will feel like an act of bad faith to individuals who purchased new cars,” said AA director of policy, Conor Faughnan. “Over the past three years, 70 per cent of new car sales have been in the Band A and Band B categories and these were sold to people who made the conscious choice to buy a greener, cleaner car with the promise that this would have a lower tax bill, he added. Friends of the Earth said it was unfair to punish those who had purchased greener cars.

When the Government introduced the emission-based tax bands for new cars sold from July 2008, there was a dramatic swing towards lower emission, particularly diesel, models. So significant is the shift that some major models, such as the Ford Focus, are now only offered in diesel in Ireland.

Heralded as a success at the time, the change in new car buyer tastes ultimately led to a fall in overall motor tax income to the State. According to figures in the Budget statement, 78 per cent of all cars taxed under the emissions regime fall into the two lowest tax bands. In turn, VRT receipts on new cars fell from €1.4 billion in 2007 to €365 million so far this year. During this period new car sales fell by 53 per cent.

It also coincided with a global focus on emissions levels by car manufacturers. This meant that many new cars, not only small city cars but larger luxury variants, are now far more efficient than they were even two years ago, and thereby fall into the lowest tax bands.

For example, the current BMW 520d diesel falls into the second lowest tax band, with the Efficient Dynamic version qualifying for the lowest band. Audi’s new A6 also falls into the second lowest tax band when powered by any of the 2-litre diesel and most of the 3-litre diesel versions.

So far this year, 42.1 per cent of new cars sold here qualified for the lowest tax band, while a further 48.1 per cent fell into the second lowest band. This compares with 2007, when just 17.5 per cent of new cars sold had emissions below 141g/km.

The scale of the sales in these two bands were accentuated by the scrappage scheme. According to figures from the Society of the Irish Motor Industry (SIMI), a total of 29,371 new cars were purchased as part of the scheme, which operated in 2010 and the first six months of this year.

Motorists who legally scrapped a car 10 years or older could avail of a discount – of up to €1,500 last year and €1,250 this year – on the Vehicle Registration Tax (VRT) due on the purchase of a new car with an emissions rating of under 141g/km.

New car registrations this year are expected to reach 90,000, nearly two per cent up on last year. However, various industry executives are predicting that post-scrappage scheme and with continued pressure on household incomes, these will fall to between 70,000 and 80,000 in 2012.