Budget 2020: Tax proposals could make for cheaper diesel cars

Several popular new diesel cars could end up being more affordable after the budget if the Government's Tax Strategy Group proposals are adopted, according to an internal paper prepared for a car company.

The Government is believed to be trying to balance a desire to increase taxes on conventional cars, especially diesels, in order to encourage buyers to move towards hybrid and electric vehicles, but are wary of a backlash from motorists, especially with a general election likely in the coming months.

At the same time a new EU testing regime – known as WLTP – is being rolled out, aimed at giving vehicles more realistic CO2 ratings. Due to WLTP, new cars will fall into higher tax bands unless the tax regime is adjusted.

According to the car company's report, which has been seen by The Irish Times, under new VRT bands proposed by the tax strategy group, and taking into account the new WLTP emissions ratings for these vehicles, models from Ford, Hyundai, Skoda, BMW and Volkswagen would ultimately see reductions in their VRT rates of 1-2½ per cent.

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The cars identified in the report are strong-selling models, accounting for more than 5,000 new car sales so far this year.

For example a Skoda Octavia 1.6 TDI Ambition has a CO2 emissions rating of 107g/km as measured under the outgoing NEDC2 system. That places it in the 16 per cent VRT band.

Under the new WLTP regime its CO2 emissions rating rises to 125g/km. If the tax strategy group changes are adopted it would move to a new lower band with a 15 per cent rate. So under the new system the Octavia diesel would work out roughly €200 cheaper than at present in terms of VRT.

Public health crisis

Alongside changes to the VRT regime, the tax strategy group proposes replacing the current 1 per cent surcharge on diesel cars with a tax on nitrogen oxide (NOx) emissions.

Diesel engines are generally higher in NOx emissions than petrol cars. NOx has been blamed for causing a public health crisis across the world, triggering cases of respiratory illness, and is the emission at the centre of the so-called Dieselgate scandal.

The proposed charges are €5-€15 per milligram of NOx. If it’s charged at the €5 rate, the overall cost works out about the same as that for the current 1 per cent diesel levy, but at €15 it would add €780 to the price at purchase time. Clearly, the key to making diesel cars less popular, if that is the Government’s ambition, is to charge the NOx tax at the highest possible rate.

Brussels-based environmental pressure group Transport & Environment said the Government should hold off on making changes.

Julia Poliscanova, the group's clean vehicles and e-mobility director, said: "Carmakers manipulate the new test to artificially inflate their emissions now and cheat future CO2 targets. Governments should resist the pressure and continue to base their tax systems on the old NEDC test until 2021."