WHAT'S THE STORY WITH THE NEW VEHICLE REGISTRATION TAX?
BMW owners rarely get much sympathy from other motorists but, in the coming weeks, the drivers of newish models of the prestigious German marque may deserve the odd pitying glance as they'll be among the few losers when the most dramatic shake-up in the motor tax industry in decades takes place.
In his final budget as Minister for Finance last December, Brian Cowen announced that from the beginning of next month, the much loathed Vehicle Registration Tax (VRT) and the annual car tax would no longer be calculated based on a car's engine size but on how much carbon dioxide it emitted. The three current rates of VRT - 22.5 per cent, 25 per cent and 30 per cent - are being replaced by a seven-band system ranging from 14 to 36 per cent.
Once the new regulations take effect, the price of a high-powered but relatively eco-friendly, BMW 520 Diesel will fall by around €8,000. While this is good news for some, it's not so good for those driving last year's model. Their car's resale value will fall dramatically and they'll be stuck paying €590 in road tax every year while those driving a '08 model of exactly the same car will pay just €150.
Beamer drivers aside, most drivers stand to benefit from the changes, with industry sources already saying the prices of low-emission cars have already started falling while those with higher emissions have started to increase; if you really don't care about the polar bears and need a gas-guzzling SUV, then now is the time to do it, as the taxes will not be retrospective - unless it works in your favour, in which case it will be back-dated to the beginning of the year.
IF YOU DOcare about the bears, there is now a real cash incentive not to buy high-emission cars. The top VRT rate of 30 per cent used to cover all cars over two litres and, on such vehicles, the highest road tax was €1,491 annually. From July 1st the highest rate of VRT will be 36 per cent and will be applied to cars which produce 226g/km of CO2 or over. These cars will also be subject to an annual road tax of €2,000, an increase of €509. Vehicles in the lowest class A band, with emissions of between 0 and 120g of CO2 per kilometre, will pay just €100 in motor tax.
While welcoming the move to an emission-based system, AA spokesman Conor Faughnan is phlegmatic. He describes VRT as a "completely pernicious and unfair tax in the first place" and says consumers should be "thankful for small mercies that at least now it is an eco-friendly rip-off". He also warns that the full benefits of the new regime might not be passed on to consumers. "One of the key things to do in the coming months will be to keep an eye on the manufacturers to make sure the tax savings from lower emission cars are passed on to the consumers in full," he says.
There is no reason why that shouldn't happen, save for the fact that manufacturers routinely set their prices not on the actual cost of making the car but on the tax systems in individual countries. The price tag on two cars rolling off the production line from a German factory - one bound for Newry and one for Drogheda - will be markedly different. Surprisingly, the cost before taxes are applied is cheaper south of the border. This is because the car makers set the UK price at a higher level because in that jurisdiction there is no VRT, just Vat at 17.5 per cent, while in the Republic there is both Vat at 21 per cent and VRT.
"It is difficult to find an explanation for the differing factory prices in different countries save for the idea that the manufacturers are being opportunistic," says Faughnan.
Although he is optimistic, the changes will be good for the consumer and will lead to cheaper cars and lower emissions, he says a difficulty might present itself when the changes start to negatively impact on the tax base.
ALTHOUGH THE GOVERNMENThas insisted that the new system will be revenue neutral, many industry observers say that as engines grow more efficient and emit less CO2 in the next three to five years and huge numbers of drivers switch to diesel engines, the vast majority of cars will migrate to the lowest tax band of 14 per cent. Inevitably this will make a major dent in the €900m that the Government makes from VRT every year.
"It is the catch-22 of environmentally motivated taxes: the more successful they are, the less revenue they generate," says Faughnan, who wonders whether the Government is prepared to take the hit or will it rework the system as soon as it starts to benefit significant numbers of motorists who adopt a more environmentally friendly approach to car buying.
One of the immediate consequences of the new eco-tax will see diesel engines become considerably more attractive, with the AA predicting that the number of diesel-powered cars will climb from 14 per cent now to close to 50 per cent within two years. This mirrors what has happened in other countries across Europe, including Norway and Finland, where tax regimes have been modified to favour cars with lower emissions.
Alan Nolan of the Society of the Irish Motor Industry is upbeat about the changes and unsurprisingly confident that all the savings will be passed on "given the extremely competitive market at the moment". A growing lack of confidence in the economy and uncertainty about pricing has seen car sales slump in recent months, with the number of cars being sold in April down 20 per cent on the same month last year. "I would be very surprised if all the reductions were not passed on in full," says Nolan. "If you were a car manufacturer and the market was slow, as it has been, then falling prices would be a great way to reinvigorate your business." He says that both new and used car buyers will benefit from the "creative" changes and says the latter group are already seeing the benefits - although he warns that people who are trading in their cars should be prepared for a shock when they realise their value has fallen significantly.
"It will take time for the changes to work through the system but ultimately I think that everyone will benefit," says Nolan. "Right across the board there is going to be better value."
Which is not something we can say too frequently.
