No appetite for more equitable tax system

SINCE IRELAND’S emissions-based motor-tax scheme was introduced, sales of cars with large engines have plummeted faster than a banker’s reputation as the public flocks towards greener, cleaner cars.

So far this year, 90 per cent of cars purchased were in bands A or B, partly for financial reasons and partly because of the stigma now attached to driving a fume-belching behemoth. So, in purely environmental terms, it has been a roaring success.

In purely financial terms, it has been less of a triumph. A combination of the recession and the speed at which engine automotive technology has moved to cut pollution has resulted in the public purse taking an absolute hammering since the regime came into effect in 2008.

The State’s income from motor tax and VRT has plunged. This is the catch-22 of the tax: the better it does its job, the less revenue it generates. For a government as broke as ours, this is a major headache.

As well as the fiscal issues, a rigidly emissions-based system has another major flaw: it is, by its very nature, unfair. While it rewards manufacturers and consumers for producing and buying efficient vehicles, it penalises motorists who may want to be more environmentally friendly but cannot afford to buy new, clean cars. It has also caused the values of many pre-2008 vehicles to collapse.

In addition, it taxes a car’s potential to pollute rather than the actual pollution it causes. If you have a new car that emits as much carbon dioxide as a daisy, yet you drive it 1,000km a week, why are you paying a tiny fraction of the annual motor tax of someone who pilots their 20-year-old V8 to the shops and back once a month?

A more equitable solution would be to abolish motor tax altogether and adopt the “polluter pays” principle, whereby the excise is piled on to the cost of petrol and diesel. In a nutshell, tax the fuel, not the engine.

The AA argues that there is too much emphasis in Ireland on taxing the purchase and ownership of cars compared to usage. Therefore, if people pay the bulk of the charges upfront in terms of motor tax and VRT, there is little disincentive to drive less. To paraphrase the comedian Chris Rock, clamping down on guns won’t stop people killing each other, but if bullets cost $5,000 apiece, folk would be a lot less trigger-happy.

However, Conor Faughnan, the AA’s director of policy, points out, there is a downside to hiking fuel duty. It would place a disproportionate burden on commuters, rural dwellers and other people who are reliant on their cars for a number of reasons, including not having access to public transport. It would also drive up the cost of everyday goods and services as transportation costs rise.

But all this discussion is moot. There is no appetite, either among the Government or the motor trade, for radical change.

The Society of the Irish Motor Industry says it is vehemently against any change which, in the context of falling sales, is understandable. The last thing the trade wants is to make motoring more expensive. “Any additional increase in motor-related taxation would impact very negatively on the motorist, on jobs and consequently on Government revenues,” according to the society’s director general, Alan Nolan.

The final word rests with the Department of the Environment, which, in a statement to The Irish Times, categorically ruled out any radical departure from the current system.

“There are no plans to abolish the current system of motor tax in favour of one that places additional taxation on motor fuel,” it says. “Any change in policy concerning motor taxation would have significant implications for the revenue base of local authorities, as the proceeds from motor tax are paid directly into the Local Government Fund to support the funding of local authorities.”

So that’s that. There may be tweaks in tax bands in the forthcoming Budget, but anyone hoping for drastic change, no matter how sensible it may appear, will be waiting.

If people pay the bulk of the charges upfront in terms of motor tax and VRT, there is little disincentive to drive less