The loss of disposable income from increased motor taxes will affect almost all households and businesses according to the AA. This is because it is a rise in a basic cost of living taxed as if it were a luxury.
The increase in carbon tax means that petrol and diesel become 1.4c and 1.6c cent respectively more expensive. Prices for both will also increase by a further 2.44 cent from January 2012, equating to roughly a 4c increase overall when the new 23 per cent VAT rate is introduced. That alone will add €6 per month in fuel costs for a modest family car, and much more for many people. The impact will be greatest in rural Ireland where mileages are higher and alternatives fewer. It also comes on top of a year of rising prices that has seen petrol and especially diesel become much more expensive month on month.
“Fuel is a basic price component in almost every goods and service in the Irish economy,” said AA’s Conor Faughnan. “This adds to business costs and cuts disposable income. Families will be unable to spend that money elsewhere in the economy.
“This is basically a continuation of what the last government did. They hit fuel three times for a total of 17 cent per litre, now this latest Budget adds another four cents on top. Fuel sales are down by more than six per cent this year. The result is likely to be the same – reduced fuel sales, reduced commercial activity, and less money in circulation.
“It is also a tactical mistake. We used to be much cheaper than Northern Ireland and our exchequer was boosted with cross-border sales. The UK was traditionally much more expensive than us but they have deferred their duty increases while we pile ours on to the point where we have lost that advantage. In all, this fuel increase could wind up costing the Government money.”
The annual rate of car tax is to increase. The lower emission cars in band A and band B will face the highest increases of €56 and €69 respectively. In part this is because 70 per cent of new car sales are now in band A and band B, reflecting both consumer choice and improvements in car design. Essentially all new cars are now so efficient that all would have been classified as ‘ultra low emission’ even five years ago.
“This is going to feel like the worst sort of bad faith for drivers who bought new cars in the last three years and made the choice to buy clean and green,” said Faughnan. “It will affect new car sales and it will also make people less inclined to believe future promises in this area.”