The primary purpose of this Bill is to give legislative effect to the increases in motor tax rates and trade plate licences contained in the financial resolution on motor tax passed by Dáil Éireann on budget day, 14 October 2008. The Bill provides for the same increases in motor tax as contained in the financial resolution, namely, an increase of 4% for cars below 2.5 litres, and CO2 bands A to D, and an increase of 5% for cars above the 2.5 litre threshold and CO2 bands E, F and G. Rates on goods and other vehicles and trade plates also increase by 4% with no increase for electric vehicles. The new rates will apply to motor tax discs and trade licences taken out for periods beginning on or after 1 January 2009. It should be noted that the increases in motor tax rates since the year 2000, including the current increases, are below the inflation rate over the relevant eight-year period.
The Bill also contains a minor technical change by relating the definition of "CO2 emissions" directly to the definition in the Finance Acts where it is used for the purposes of the vehicle registration tax system. The amendment in this Bill means that all the relevant definitions common to both motor tax and VRT derive from one source and ensures uniformity in both tax systems.
The Bill as initiated was also amended on Committee Stage in the Dáil to provide equality between 2008 cars registered in this country and those first registered abroad in the first six months of 2008. The last paragraph, 6(g), of the Schedule to the Bill, contains the amendment. This Bill does not introduce novel arrangements for the taxation of cars. We are less than six months into the operation of the new system of CO2 based tax for new cars and the Bill which introduced those significant changes was discussed in this House only last March.
It is clear, however, from early data that the system is having a significant impact on purchase decisions in the market. The trend following the first five months of operation is that just under half of the cars in the new system are in the second lowest B band category, with 29% in C band. The three lowest bands A to C contain 85% of the CO2 car fleet. The industry itself has stated that the new system is working well from an environmental viewpoint, with indications of an average reduction of 20g in CO2 emissions per km per vehicle since the system came into effect. The CO2 car fleet now contains 48,019 cars. This corresponds to 2.48% of the entire car fleet and this will continue to grow as new cars replace older cars in the fleet. It is also clear that the new taxation system is bringing a focus to environmental performance of vehicles like never before. The industry has transformed the way it advertises new cars with particular emphasis now being placed on the emissions levels of cars.
Versions of CO2 based motor taxation systems have now been introduced in 14 EU member states. These policies are having a profound effect on how the car industry responds to the challenge of climate change right across Europe. This will be further reinforced by the Commission's proposals to set limits on emissions, which Ireland strongly supports.
The way in which we consider our relationship with cars is just one of many issues to be addressed if we are serious about our climate change obligations. This debate is an opportune time to reflect on those issues in light of the agreement on the EU climate package which was agreed by the Heads of Government last week. As part of this deal, 27 countries have taken on unilaterally new legally binding post-Kyoto greenhouse gas emissions targets. As I said last week when I addressed the UN conference on climate change in Poznan in Poland, the EU leaders' agreement must be seen as a first step towards a new global climate agreement. Europe has said it will reduce unilaterally its emissions by 20% compared with 1990. We have set out in detail how this will be achieved but now we must go further. Europe is ready to step up to a 30% reduction as part of a global climate agreement. While Ireland had supported the Presidency and the Commission in pushing for a package that was stronger than that finally agreed last week, I hope this move by Europe will encourage other major countries to propose their own post-Kyoto reduction targets and other new commitments.
A new US Administration under a President who promises to lead the way on climate change offers great hope that agreement on an ambitious target can be achieved next year. The EU package agreed last week still represents an enormous challenge for Ireland. We must now press on with the serious task of transforming ourselves into a low carbon society and economy.
One further car related initiative which I would like to mention is the decision by Government to establish an interdepartmental and agency group to look at deployment of electric vehicles, which group will be overseen by my colleague, the Minister for Communications, Energy and Natural Resources. It will examine the best way forward to promote the use of electric vehicles in Ireland. A target has been set of 10% of all vehicles in the transport fleet to be powered by electricity by 2020. This will represent up to 250,000 cars on Irish roads over the next 12 years. Tax incentives have been introduced for businesses to purchase electric vehicles by allowing them to write off 100% of the cost of purchase against tax under the accelerated capital allowance scheme.
Sustainable Energy Ireland will also be funding a €1 million project to research, develop and demonstrate on a national basis alternative transport technologies, including electric vehicles. Sustainable Energy Ireland has published a buyers' guide and a cost of ownership calculator to aid individuals interested in purchasing electric vehicles. I have not increased the charge for electric cars in the Bill, maintaining the position I adopted last year.
The move to change the car fleet to a more sustainable basis poses challenges for protecting local government funding. The introduction of emissions-based vehicle registration tax and motor tax had a dual objective of encouraging a move to lower emissions vehicles while protecting central and local government revenues. It is my intention to keep these dual objectives under review, in conjunction with the motor industry, in the light of experience of the new system.
The sole purpose of the Bill's changes in motor tax rates is to increase funding for local government. It is important to note the proceeds of motor tax are not paid to the Exchequer but directly to the local government fund for local government purposes. The motor tax element of the fund is also supplemented annually by an Exchequer contribution. The fund is used primarily to finance regional and local roads and the general purpose needs of local authorities. It is anticipated the proposed increases in motor tax rates will raise approximately €40 million extra for the fund next year.
Senators will be aware of the significant role the local government fund plays in financing local government. Local authorities will spend €11.7 billion in 2009 on capital and current expenditure. Some €1.6 billion will be available for allocation via the local government fund for general purpose grants, allocated by my Department, and for regional and local roads, allocated by the Department of Transport. More than €935 million in general purpose grants will be provided to local authorities from the local government fund in 2009. These grants comprise one fifth of the funding required by authorities to provide their day-to-day services. A sum of €564.5 million has also been allocated to the Department of Transport from the local government fund for 2009 for regional and local roads.
An additional sum of approximately €80 million will be allocated for specific local government purposes, including the operation of water services and the administration of group water schemes and the vehicle registration unit. It is a matter for each local authority to prioritise its spending across the range of services it provides and within the resources available to it. Equally, local authorities must ensure full value for money for the resources invested and seek the maximum efficiency across their operation. I am satisfied the general purpose allocations I have provided for 2009, together with the income available from other sources, will enable local authorities to provide an acceptable level of service to their customers.
While I appreciate there will be calls for additional funding for local authorities, the problem is we are caught up in a severe global economic recession which requires all sectors to respond to new realities. That includes having less money to meet public expenditure demands. We cannot borrow our way out of trouble or return to the days of punitive tax rates that stifled economic growth and resulted in high unemployment.
Local government must also play its part in the difficult period ahead. With hard work and determination, we will get through these difficult times to a path to economic recovery and renewal. In this regard, I have urged local authorities to continue to exercise restraint in setting increases in commercial rates and local charges. It is important every opportunity should be given to the business sector to remain competitive in these tough economic times as a sound business sector is vital for the communities that depend on them.
One of my key objectives in office is to see local government play a much stronger and more visible role in the life of the local community. I am finalising a White Paper on local government which will contain significant institutional reforms. Changes to the way local government operates must be accompanied by measures which provide a greater link between local revenue raising and local expenditure. This is key to introducing greater local responsibility and accountability in decision making.
The Government has made a start in this regard in the budget decision to broaden the revenue base of local authorities through the introduction of a charge on non-principal private residences. This will be used to support the provision of local services. I intend to bring forward legislation to implement the proposed charge as soon as possible and to set out the detailed measures necessary to give effect to it.
The Bill consists of six sections with the new tax rates for all vehicles are set out in the Schedule. Private cars and goods vehicles make up more than 91% of the national fleet. For private cars, taxed on the basis of engine size, the extra cost for most motorists will be between €7 and €13 a year, that is between 13 cent and 25 cent a week. This relates to more than 50% of the national car fleet which is made up of cars under 1400 cc. For the remainder of the car fleet, up to 2 litres, the annual increases will be from €14 to €24 and from 2 litres upwards an additional €30 to €75 per year. The extra costs for 94% of the car fleet — those under 2 litres — will be between 13 cent and 46 cent a week. For private cars on the new CO2 based system, bands A to D will see an annual increase of between €4 and €17, while for bands E, F and G, the annual increases range from €30 to €100.
For goods vehicles the effect of the 4% increase will vary depending on the weight of the vehicle. However, 87% of goods vehicles are at the lowest level of charge, meaning they will pay an annual increase of €11, or 21 cent per week. A 4% increase is also proposed for trade licences, or trade plates, used by motor traders on vehicles temporarily in their possession, in lieu of taxing such vehicles. The increase for a pair of trade plates will be €12.
This is a short Bill of only six sections. Its purpose is to give permanent legal standing to the increases in motor tax introduced by a financial resolution passed by Dáil Éireann on 14 October 2008. I commend the Bill to the House.