Dáil Éireann debate -
Wednesday, 3 Jul 1991

Vol. 410 No. 3

Ceisteanna — Questions. Oral Answers. - Excise Duty on Motor Vehicles.

Michael Noonan

Question:

3 Mr. Noonan (Limerick East) asked the Minister for Finance if he will outline the Government's policy on the reduction of VAT and excise duty on motor vehicles in accordance with their EC obligation; if he will confirm whether the Government intend introducing a first time registration fee to recoup any loss to the Exchequer from any such reduction; if he will further outline the basis for calculating this registration fee; and if he will make a statement on the matter.

Jim Kemmy

Question:

15 Mr. Kemmy asked the Minister for Finance whether, in the light of a recent decision made by the EC to ensure tax harmonisation of cars, he will outline when he proposes to harmonise the purchase of cars for consumers; and if he will make a statement on the matter.

Minister for Finance (Mr. A. Reynolds):

I propose to take Questions Nos. 3 and 15 together.

The ECOFIN Council have agreed that cars will be subject to the standard VAT rate after 1992, when a minimum rate of 15 per cent will apply. The Council have also determined that purchases in another member state of vehicles liable for registration will be subject to VAT in the country of destination at that country's rate. In addition, the agreement reached allows member states generally to introduce or maintain taxation on products, including cars, provided such taxation does not give rise, in respect of trade between member states, to formalities in connection with border crossing.

I am sure that Deputies are well aware that duty on motor vehicles is a very important source of revenue for the Exchequer and I have made it clear that budgetary realities require that this revenue must be preserved after 1992. However, as the present system of collecting and safeguarding the excise duty on cars depends on checks at the frontier, or at points of entry to the State, it will have to be modified. Alternative systems for collecting the tax are currently being studied; while I am not yet in a position to indicate the nature of any replacement tax, or to indicate how it would be collected, a registration based system is an obvious possibility.

Mr. Noonan

(Limerick East): Is it the Minister's intention to recoup the full potential loss to the Exchequer in one way or another in the first year? Will he give a commitment to reduce the registration fee subsequently over a series of budgets so that the benefits of harmonisation will be passed on to the citizens of this country when they purchase motor cars?

Mr. A. Reynolds:

As I am sure the Deputy and the House appreciate, £262 million was raised by way of excise duty in 1990. Therefore, in present budgetary circumstances, it would not be feasible to forego such revenues. It would be misleading to pretend that this was a realistic option. The question of what may happen in a few years time is a matter for the budgetary process at any given time. It would be misleading for me to create any other expectation at this stage.

Mr. Noonan

(Limerick East): Is the Minister aware that the motor industry are in a parlous state at present, that the precincts of garages throughout the country are full of unsellable secondhand cars and that certain garages are now refusing to give a quote to customers with a trade-in? Would he consider that the announcement made and confirmed today will make a bad situation even worse? Does he have any plans to alleviate the problems confronting the motor industry?

Mr. A. Reynolds:

The announcement was not made today but quite some time ago. In all my meetings with the motor industry since I was appointed Minister for Finance, I have never held out any unreal expectations to them with regard to what the situation might be post-1992. They asked me to create certainty for the trade as soon as possible because in their view people were holding back trade-ins because of speculation that cars might be cheaper. The motor industry have always been aware of the level of revenue raised for the Exchequer and I do not think they are under any illusions. That industry began to recover in recent years and no one in the motor trade, or elsewhere, projected that there would be such a falloff in car sales this year. This is not a phenomenon peculiar to Ireland. The Deputy and the House will be aware that this is the position throughout Europe. Indeed, the motor industry in the United Kingdom are going through one of their worst periods ever. This is a reflection of the economic position and the lack of confidence on the part of the consumer in the aftermath of the Gulf War. This has not contributed to it one way or the other.

Mr. Noonan

(Limerick East): May I ask a final supplementary?

An Ceann Comhairle:

It must be very brief, Deputy, as I am anxious to dispose of the five Priority Questions.

Mr. Noonan

(Limerick East): Does the Minister consider that both he and the Government are in danger of undermining pro-European sentiment in the country in so far as that the consumer will have to suffer all the penalties arising from the Internal Market and European integration but the benefits of harmonisation will not be passed on?

Mr. A. Reynolds:

Lest there be any misunderstanding, I did not seek permission to introduce any special car registration tax. I am complying with the arrangements agreed to at European level. The consumer with an average size family car should have already received the benefits of the reduction in the VAT rate from 25 per cent to 21 per cent, approximately £500. Consequently, it is not all one way traffic. There is also a differential in the margins with regard to car sales when compared with figures elsewhere, tax excluded. I do not accept any responsibility in this matter. The motor industry are going through a bad time but, as I said, it is not a phenomenon exclusive to the Irish market.