Budget 2007:The Government may consider introducing an increased rate of vehicle registration tax (VRT) of 35 per cent on large vehicles over 2400cc or else charging taxes on the basis of a vehicle's CO2 emissions.
Brian Cowen
In a consultation document published with today's Budget, Minister for Finance Brian Cowen outlined a number of options for a more environmentally friendly vehicle taxation system, which he said should be broadly "revenue neutral".
Mr Cowen said he wanted to change the current rating system to "relate it more closely to environmental policy objectives, in this case reducing carbon dioxide emissions".
"I intend that there should be some reward in the VRT system for choosing lower-emission vehicles, and that those choosing higher-emission vehicles should pay more," Mr Cowen said.
Among the options outlined are adjusting the existing bands and VRT rates to encourage the purchase of smaller cars, with a rate of 15 per cent VRT applying to cars up to 1200cc, a reduction in the current A1 rate of 22.5 per cent to 20 per cent for cars between 1201cc and 1400cc and a new band for larger engine vehicles at a 35 per cent rate.
Alternative options include a retention of the current engine size bands and VRT rates but with the application of a discount of, say, 5 percentage points, for cars with lower CO2 emissions and a levy for cars with higher emissions.
The Department of Finance will also examine next year the case for disallowing capital allowances and leasing expenses for high-emission vehicles.
The public consultation process will continue until March 1 st, with a view to implementing any tax changes from January 1 st, 2008.
At the same time, Minister for the Environment Dick Roche will consult on his proposals for a "complementary rebalancing of annual motor tax", Mr Cowen said.
"This would provide a further incentive through the motor tax system for the motoring public to drive cleaner cars and would impose some additional cost in respect of cars with higher carbon dioxide emission levels.
"This would apply to vehicles registered on or after 1 January 2008. Underpinning both of these initiatives will be a new mandatory labelling system for cars based on CO2 emission levels.
"Linking consumption taxes to environmental goals requires us to discuss the details of such moves thoroughly with stakeholders if we want to get it right."