Cantillon: Motoring recovery could do without tax revision

The latest new car registration figures suggest the motor sector is returning to rude health. The total new car sales up to the end of July exceeded the total for last year.

Recovery has been a long time coming. The motor trade was hit hard by the recessions, with multiple dealer closures and significant job losses. The economic collapse coincided with a major revamp in the tax regime introduced by the then coalition government of Fianna Fáil and the Green Party.

In an effort to make motorists more environmentally aware, we swapped a tax system focused on engine size for one based on carbon dioxide emissions. From July 1st, 2008, seemingly motorists had an eco-epiphany. Motor tax rates were the talk of every forecourt. Diesels were in; petrol was prehistoric. The upheaval had a major impact on used car values as consumer trends were turned on their heads. It didn’t help that the number of motor tax bands was reduced to just seven.

In terms of changing consumer buying behaviour, the move was a tour de force. In terms of revenue generation it was a car crash – even without the onset of the economic collapse.

Tighter targets

Since then the motor industry has been busy working to ever tighter CO2 emissions targets at EU and international level. It would be ridiculous to think the motor giants were influenced by tax changes in a market that at its height was barely the equivalent of greater Manchester. Yet the latest sales figures tell their own tale. Of the 131,242 new cars registered to the end of July, 78.5 per cent fell into the lowest band for motor tax.

Hardly surprising, therefore, that figures from the Department of Transport show a decline in motor tax revenue this year of €38 million, while Fianna Fáil’s spokesman on local government, Barry Cowen, estimated it could hit €80 million by year end.

His proposal of a review of the current regime, however, will soften the cough of a sector just getting back on its feet. The very idea of a rerun of the changes of 2008 will give dealers and distributors palpitations. In a way, the motor tax regime is a victim of its own success. The fall in revenues has to be addressed but overhauling the system once again – particularly as motor insurance rates are skyrocketing – is likely to have both motorists and the motor trade up in arms.