The Irish government has a problem. It is a problem that the AA can be very relaxed about because it is something our members are likely to cheer. Vehicle Registration Tax takings have collapsed. This monstrous tax on car owners has always been deeply unpopular and lots of people will be glad to hear that motorists are paying far less of it.
Five years ago VRT raised €1.4 billion for the exchequer. This year they will be lucky to break €400 million. That is a shocking trend line even in a recession.
It has come about because of the change from taxing on engine size to taxing on CO2 emissions. There is nothing wrong with this in principle but the 2008 changes contained a major mistake. They specified that new cars from then on would pay both VRT and annual car tax on the basis of emissions brackets while older cars would continue under the old system.
Despite the explicit warning from the AA the new regulations did not take account of what would happen if the technological standards of cars continued to improve. If you consider how fast the pace of technology has been for smart-phones and iPads in the last half a decade it is clear that five year old standards are pretty meaningless. This is no less true for the astonishing progress of cars.
When the new regulations came into force in July 2008 less than 4 per cent of new cars were in tax Band A. Last year that was over 40 per cent, and over 90 per cent of cars were either in Band A or B. Nice for the planet but brutal for the Department of Finance.
Car manufacturers who screamed at EU policy makers that their pollution targets were impossible quickly found that where there is a will there is a way. Ultra efficient diesel engines, stop-start systems that turn the engine off in traffic, hybrids and other advances mean that cars simply aren’t polluting any more.
If you have a brand new Band A car for use by a family of five, that car will need to do more than 10,000 miles per year before it produces as much CO2 from the tail-pipe as the family will produce by breathing. This is fantastic progress but it has long outstripped the government’s desire to keep taxing us heavily.
Faced with collapsing revenue from the sector the government last December announced that car tax was to increase with the largest increases on the lower tax bands. What this means is that people who made the conscious choice to buy clean and green now find themselves facing bigger bills. It feels like bad faith to them and was a deeply unpopular move.
Environment Minister Phil Hogan is once again reviewing the car tax regime this time with a view to correcting the mistakes in the 2008 regulations and preserving the future tax take. There is a point of fairness here.
It does not seem reasonable that someone lucky enough to buy a brand new luxury car at a cost of €45-€50,000 should pay less for annual road tax than an eight year old petrol runabout that is worth no more than a tenth of that.
From the AA’s point of view I suppose there is such a thing as succeeding too well. Our members always resisted VRT, and while the AA’s activities contributed in no small part to dramatically reducing the amount that motorists pay it is clear even from our point of view that allowing the car tax base to diminish year on year is not sustainable.
I wish that I could predict otherwise but Minister Hogan’s review is likely to see those car tax bills going up.