Is a tax treble whammy about to hit motorists?

Analysis:Inside the Irish motor trade you can hear next week's budget coming ever closer, almost as a series of dull thuds, as if a grumpy giant were approaching. Although nothing will be officially confirmed until Minister for Finance Michael Noonan sits back down in the Dáil next Wednesday, most in the motor trade are braced for three key changes that will affect car sales next year, for good or for ill.

The first is an expected increase in vehicle registration tax, which many expect will see an average 3.5 per cent rise in the price of a new car. (Cars in higher tax brackets will see higher increases.) Taking a new Ford Focus 1.6 TDCi Edge, that could mean a jump of about €700 on a current price of €23,485. Not outrageous, perhaps, but potentially a deal-breaker for hard-pressed buyers.

More worrying still is the potential for another rise in VAT, which, because VAT is charged on both the wholesale price and the VRT, means a double increase in the purchase price.

It is also expected that the motor-tax system will be adjusted again. In its submissions to the troika, the Government promised to alter it by 2013. The deadline is upon us.

There are suggestions that the two lowest tax bands, A and B, will be subdivided. For example, band B may be split in two, with the ceiling for band B2 set at the current, 140g/km level. Band A may in turn divide into four sub-bands, with the lowest running from 0 to 80g/km.

The old, pre-2008 motor-tax system brings in an average of about €450 a car; cars taxed under the post-2008 system, based on carbon-dioxide emissions, net the exchequer closer to an average of €200 a car. Whatever the plan unveiled next Wednesday, motorists can expect that gap to be significantly narrowed.

New plate system

Finally, in a fillip of good news, for the trade at any rate, there’s the shift to a new number-plate system. Instead of your new car being registered as a 13-C (other counties are available) it will be a 131 until July, when a second registration period will begin, bringing in 132 plates.

Dealers are so happy about this change, and so sure the rumours are correct, that many have already begun to display mocked-up 131 plates.

It neatly sidesteps the underlying (possibly silly) dread of an unlucky-13 plate and gives the trade what it has been crying out for in recent years: a second registration period to take the pressure off the first quarter of the year.

Will that lead to better value for consumers? Most car importers say it will, eventually, but then they would say that, wouldn’t they? More conservative members of the trade say that there might be a lift in sales next year but that it will peter out in years ahead. Weak economic fundamentals are what are weighing down sales, not the format of number plates.

In spite of the economic black clouds that have come to characterise budgets since 2008, most of the car-trade heavy-hitters we speak to seem cautiously optimistic about the coming year.

Michael Nugent of BMW Ireland says, “I think first and foremost we need clarity. We need a clear direction from the Government. It’s unfortunate that we have to wait until the budget announcement, because, naturally, people are in consideration mode now, and I think it would be good – for us, it’s good for the customer, it’s good for the consumer and it’s good for the tax take – if the Government clarified earlier what they intend to do.

“The one difference this time was that the industry was consulted. We welcome that, and that should be continued going forward, but I can’t see why, when there’s such a long lead time for a purchase of this type, the Government can’t announce their intentions earlier. As of now, we are experiencing a reasonable level of interest for next year, and we’re quite hopeful that next year will be an improvement on this year.”

Vulnerable position?

Gerard O’Farrell, managing director of Jaguar Land Rover Ireland, says the SUV side of his business seems to be in a vulnerable position, having made great strides over the past months to reduce the carbon-dioxide emissions of its range – moves that could be upended by changes to the tax regime.

He seems sanguine, though. “I think that the changes that the brand has made over the past two to three years, in terms of new models, getting more efficient engines, has put us in a very good position. Whatever changes happen in taxation, Land Rover won’t be disadvantaged but, on the contrary, will actually have a better price proposition for customers. For instance, the new Range Rover, we’ve taken half a tonne of weight out of the car, that’s brought us down a category and has effectively halved the road tax on that car.”

Also on a drive to reduce its average CO2 emissions, and therefore also caught between a potential tax rock and VRT hard place, is Mazda. Richard Molloy of Mazda Ireland says next year will be no picnic. “SkyActiv technology is putting Mazda in a really strong position. The whole ethos behind it is to engineer the car to deliver the best possible CO2 and fuel efficiency. So, even with the proposed VRT changes, we are going to be in a class-leading position in all our segments.

“It’s definitely going to be difficult for the industry. I suppose the one thing for the customer is that all car manufacturers, all brands are looking for business, so there’s value out there for consumers, but it’ll be a difficult year next year.

“I think the 131-132 plate is a good thing. It’s definitely the way forward. It’s been difficult for the industry being so highly geared towards sales in January. I think we’ll see a bigger kickback from that in 2014. I think next year will hold roughly around the same as this year.”