New Report Tackles Irish Motor Tax Reform

Findings from a new economic report published today from economist Colm McCarthy supports a major reform of the motor tax system in Ireland.

The report suggests that the current level of motor tax on new cars in Ireland is hindering motorists from switching to newer greener models thereby facilitating rather than reducing carbon emissions.

In addition, the report highlights the need for reform to safeguard the amount of revenue that the Government gains from motor taxes for the maintenance and safety of Ireland’s transport system.

The independent report was commissioned by the Irish Car Carbon Reduction Alliance (ICCRA), which includes the majority of car dealers in Ireland, representing almost every brand.

“Urgent action is needed across all sectors of the economy and we recognise that the motor sector and motorists have an important role to play. We required an independent expert review of the present situation so that we can make a real contribution to the important discussions taking place at national level. We wanted to bring realistic ideas to the table that could aid the Government’s ambition to reduce the carbon footprint of the cars on Irish road,” states Denis Murphy, spokesperson for the ICCRA.

“Currently, we have one of the highest levels of car emissions in Europe. Reducing it can be achieved in one of two ways – by reducing the number of car journeys or by driving cleaner cars. The former requires a cultural change and significant investment in public transport, particularly in rural Ireland, where car mileage is highest. The latter can be achieved almost immediately by addressing the main underlying reasons preventing the purchase of greener cars – namely taxation and the Vehicle Registration Tax (VRT).”

According to the report, the current level of VRT is not only reducing sales of new cars, it is also having a detrimental impact on the used market by inhibiting the availability of two- and three- year old models. This is creating an artificial demand for used imports, which Mr McCarthy says is being met with older UK models, with poorer fuel efficiency than the equivalent new variant. He further highlights that with the current motor tax system, the Irish purchaser of a used UK vehicle, at a specific price point, is paying less tax to the Irish Government, than a purchaser of new vehicles at the same price.

“The current system does not make sense for the economy or the environment. VRT is a dysfunctional tax. New cars in 2021 with internal combustion engines (ICE) will emit 28% less CO2 than the average car currently on Irish roads, so for every car we replace with a newer cleaner car, we can achieve significant reductions. Motorists should be encouraged to purchase newer cars – it would be a win-win for everyone,” said Mr. Murphy.

The current system of taxation of motoring generates approximately €6 billion annually for the state. Colm McCarthy states that substantial revenue must be maintained to cover the direct and indirect costs of motoring, even if carbon emissions are reduced. However, the report shows that the switch to electric vehicles threatens to eliminate a large part of the current revenue base, as it is linked to taxes on fossil fuels. Mr. McCarthy says this necessitates a change in how taxes are levied from motorists, and he suggests that some form of road–user charging is required.

The ICCRA is seeking a cooperative approach between Government, industry and policy makers. “We are committed to reducing carbon emissions. However, realistic goals are required to achieve the EU’s carbon emission targets set for 2040, which all the major car manufacturers are aligned committed to achieving,” said Mr. Murphy.