Seanad Éireann debate -
Tuesday, 27 Mar 2012

Vol. 214 No. 9

Motor Vehicle (Duties and Licences) Bill 2012: Second Stage

Question proposed: "That the Bill be now read a Second Time."

Minister for the Environment, Community and Local Government (Deputy Phil Hogan)

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 the Dáil on budget day, 6 December 2011. The new rates apply to motor tax discs and trade licences taken out for periods beginning on or after 1 January 2012.

The Bill provides for the same increases in motor tax as contained in the financial resolution, namely, an increase of 7.5% applied across most categories of vehicle and to trade licences. As set out in the financial resolution, there was an exception for private vehicles in the lower CO2 bands A — C with the higher flat rate increases as follows: band A rises from €104 to €160; band B rises from €156 to €225; and band C rises from €302 to €330.

While the levels of increase announced for the lower CO2 bands are higher in percentage terms than the rest of the fleet, they must be viewed against a structure that left the bottom rates very low. It is also important to note that the underlying structure of the banding system has not been changed, and there remains a positive incentive to purchase low CO2 cars.

There has been a significant loss of motor tax income in recent years, as the number of vehicles taxed on the basis of CO2 emissions has increased by about 5% year on year. While this is very welcome from an environmental perspective, it has represented an increasing loss to the local government fund. Receipts have been reduced from €1,060 million in 2008 to €1,010 million last year. Once older cars are replaced by cars taxed on the basis of CO2 in the next 15 years or so, it is estimated that total motor tax from cars will fall by more than 40%. In the current economic circumstances, and given the need to maintain a diversified and stable taxation system, this loss of income represents an opportunity cost that must be rectified.

The Bill contains eight sections and a Schedule. Sections 1 and 8 are procedural. Section 2 sets out that the rates apply to licences taken out for periods commencing on or after 1 January 2012. Section 3 provides for the Schedule to the Bill, with the new rates, to replace the existing Schedule in motor tax legislation. Section 4 provides for the increase to apply to vintage or veteran vehicles. It also contains a minor amendment to the definition of "CO2 emissions”. Section 5 provides for the increases that apply to trade plates and replacement trade plates. Section 6 provides for the income from the increases in respect of 2012 to be transferred from the local government fund to the Exchequer. This is a once-off necessary measure towards the reduction of the national debt. It is estimated that the income from the increases will be €46.5 million over the course of the year. Section 7 is intended to correct an inequity in the system whereby a specific and very small number of vehicles which were registered outside the State between January and June 2008 and subsequently imported can currently switch back and forth between the two systems of charging — CO2 or engine capacity — depending on whichever of the prevailing rates pertaining to the vehicle is lower. From 1 May 2012, these vehicles will be fixed on the system of charging that carried the lower rates prior to the budgetary increases. The Schedule sets out the new annual motor tax rates for all other vehicles.

Three minor technical amendments are also contained in the Bill. All three relate to changes in definition to ensure uniformity with definitions used for VRT purposes. Section 4 contains a minor technical change to the definition of "CO2 emissions”. Part 4 of the Schedule provides for an amended definition of “motor caravan”. The final amendment relates to the change in classification of passenger vehicles from category A to the EU defined category M1.

To summarise and conclude, this is a short Bill with the purpose of giving permanent legal standing to the increases in motor tax introduced by the Financial Resolution passed by Dáil Éireann on 6 December 2011. I commend the Bill to the House.

Senator Paschal Mooney

I welcome the Minister to the House. This seems to be a catch-all Bill. It will apply to vintage cars and includes an amended definition of motor caravans. It seems to be yet another example of the Government scrounging around and trying to find extra money wherever it can. There is, in this instance, a breach of trust, not only with the motor industry but, more importantly, with motorists who purchased environmentally friendly cars since 2008. The financial incentives put in place at that time were, I am the first to admit, part of Green Party policy in the programme for Government. They were an attempt to reduce CO2 emissions as part of Ireland’s policy, which I am sure is continued by the current Government, of reducing carbon emissions and the threat to our environment, particularly coming from fossil fuel consumption. It was in that context that these measures were introduced. The measures were controversial at the time and the motor industry did not, exactly, embrace them because they saw that trade-in values would go down and that sales patterns would be disrupted. It is interesting that, four years later, we are yet again making changes while the Society of the Irish Motor Industry, SIMI, is screaming blue murder about them.

In a pre-budget submission, SIMI made references to the Government proposals which were being leaked widely at the time. It made it clear that it did not want to see any major change to the road tax band structure that would destabilise the market. It seems that unlike a lot of other industries or those in the services sector, that the Irish motor industry requires a lead-in time in order to prepare for a sales period which is very short in duration — it lasts from January to April, which again somewhat surprises me — but I suppose it is because it involves new registration numbers. The sums involved are enormous. They make the point that it is becomingly increasingly risky for the industry, as vehicle manufacturers must pre-order €500 million worth of new cars for a very short selling period that is virtually over by April and that seasonality is a high risk also for the Exchequer as a bad start to the year means that lost revenue will be irrecoverable until a year later.

The Minister has outlined the changes in that there will be further increases on an already hard put-upon sector, namely, the Irish motorist. Fuel prices have increased significantly. I appreciate that is not within the remit of the Government. It can do nothing about it. In fact, the one hope is that if the dollar were not to prove strong or the euro were to recover to some degree perhaps fuel prices would reduce, but there does not seem any likelihood of that in the short to medium term. It appears that prices are only pointing upwards. Perhaps if there were a little more stability in the Middle East it might help to reduce fears about the supply.

While this is the first increase in motor tax since 2008, it is one that is questionable and controversial. The State expects it to yield an additional €46.5 million but the choice of buying clean and green vehicles has been hit with fees of €56 and €69. While I appreciate that the Government must find money wherever it can, we believe it is a regressive move that cannot be defended on purely revenue-based grounds because it is targeting environmentally-friendly cars. The decision to incentivise low CO2 emission vehicles has been having a real impact on this country’s efforts to contribute to tackling climate change. A total of 88% of new vehicles in 2008 were purchased in the A to C bands as motorists responded to the incentives, switching from high emission cars to low CO2 emission vehicles. The switch occurred as a result of the financial incentives provided and the Government is now jeopardising that progress. It would be interesting to know once the tax increase is introduced that the Government will monitor whether what was said about the tax inside and outside the House will come to pass. The connection between the rate of tax one pays and the CO2 emissions from one’s car was at the heart of the introduction of the CO2-based bands in 2002. It ensured that a link existed in the motorist’s mind and, most importantly, his or her wallet, between driving an environmentally-friendly car and paying a low motor tax rate. The Bill erodes that connection. It downgrades the importance of environmentally sound practices at the heart of broader public policy.

The Minister who is primarily responsible for policy in this area might reassure people that in going for this tax grab, it is, on the one hand, going to, questionably, increase the public purse by a certain amount, which is also questionable in light of the struggles currently experienced by the motor industry, but on the other, he must also balance that against another part of the Government's policy, namely, to be more environmentally aware and achieve the international targets to which we have signed up. The continuing use of fossil fuels is not in the best interests of everybody. I appreciate that people say this country's contribution, or lack of it, to improving world climate change is somewhat insignificant but if every other small country were to adopt the position we are now adopting then the cumulative effect would have an adverse impact on improving the reduction in CO2 rates.

Senator Cáit Keane

I welcome the Minister. This is old news given that it was announced last December in the financial resolutions passed by the Dáil on budget day. What we are doing today is giving legislative effect to what was announced on budget day. In 2007 it was announced in the Budget Statement that to support the environmentally-friendly policy of reducing carbon emissions, the system of vehicle registration tax was to be changed to encourage the purchase of lower emission vehicles. I give credit where it is due. The then Minister, Mr. John Gormley, had the best of intentions in seeking to be environmentally friendly, but these measures were described at the time as being broadly revenue neutral. They are not achieving the second aim. The economic climate has changed drastically owing to the recession and the predicament in which we find ourselves and as a result the Government has to find money somewhere. It could have been found elsewhere had different decisions been made. The purchase of vehicles with lower carbon emissions that do less damage to the environment is to be commended and encouraged and there is still ample opportunity to avail of the lower rates for such vehicles provided for in the Bill. Those who buy vehicles that fall into the lowest band categories in terms of CO2 emissions will pay the lowest tax rate, rightly so.

The Bill increases motor tax rates. As the Minister has given them, I will not rehash what he said. There will be an increase in the tax payable by the owners of cars with lower emissions and neither the Government nor I contest this fact. However, it also cannot be contested that the owners of cars with lower CO2 emissions are paying considerably lower amounts in motor tax than the owners of vehicles with higher rates of carbon emissions. The incentive to buy more eco-friendly cars is not being removed in the introduction of this legislation. Those car owners whose vehicles pollute the most will pay most and that will still be the case under the Bill. The rates have changed, as we must recognise, but we must also be realistic when tabling legislation to ensure it will not have a knock-on effect. There is a massive gap between the rates payable on eco-friendly and the more polluting vehicles. The principle that the polluter pays more remains static. Moreover, this is the first increase in motor tax since 2008. It is not, therefore, the case that vehicle owners have been subject to consecutive yearly tax hikes and I do not presume they will be.

Undoubtedly, there is opposition to the tax increases, some of which we have heard. However, all of the facts must be considered. One must either raise taxes on cars or the lower paid. If one wishes to raises taxes on wages and work, that is another argument. We cannot have our cake and eat it, as we must find the money somewhere. Therefore, difficult decisions have to be made and this is a one that must be made at this time, as the reality is that tax revenue is plummeting, which is a worrying development. As we are all aware, our economic position is unstable and we simply cannot afford to see this decline in tax revenue continue.

While the CO2 bands were designed to promote a switch to lower emission vehicles, as I stated, the changes were also based on a second principle, that of being revenue neutral. This aspect must also be considered. The motor taxation system must be reviewed to ensure it meets the twin objectives outlined during the years. As the second is not being met, the Bill is being introduced to try to reach it.

In the initial part of the Bill the definition of CO2 emissions is as contained in section 130 of the Finance Act 1992. I ask the Minister that in another section we look at the definition of CO2 polluting cars. A number of months ago I watched the programme “Top Gear” on which it was reported that battery cars charged at the low rate were more polluting if one calculated the figure from the early stages of manufacture, taking account of the pollution caused in the making and recycling of the battery, the weight of the battery and the level of consumption of petrol used in driving. This shows that cars deemed to be CO2 friendly are not so. Therefore, the definition of CO2 emissions, particularly as it applies in the case of motor vehicles, must be evaluated on a scientific basis. I ask the Minister, perhaps in another Bill, to look at this issue because we must ensure we are doing what is right for all drivers here. As the Minister said he was reviewing the structure of vehicle motor tax as a whole, he might provide some information in that regard. Section 6 gives permission on a once-off basis to transfer the revenue raised from the local government fund into the Department of Finance. Given the State coffers are in a dire position, and while I agree with this measure, I ask the Minister to confirm this is a once-off measure, which is how I read the Bill. Moreover, I hope taxes raised locally for local government will stay in the local area.

Senator Feargal Quinn

It is fair to say that while we do not particularly welcome the Bill, it is better to get it in and out and behind us. I have a real difficulty with the legislation and the tax system in regard to cars. I am delighted the Minister intends to look at this area as it needs examination. I cannot believe gardaí, who decided on a vocation to protect the nation, have to spend so much time standing at the roadside, stopping cars to look at the windscreen to see if there is a tax disc. We have so many CCTV systems, toll roads and other systems that there must be a better system available.

The immediate question to ask is why do we not tax petrol and diesel more instead of taxing the car itself. As I told Senator Mooney the other day, my father had a ballroom at Red Island holiday camp way back in the 1950s when there was a tax on dancing of 25% so, if there was a 6 shilling ticket, 1s 6d went to the taxman. The ballroom owners did not particularly like this so they held a big meeting in Dublin and suggested that, instead, there should be a tax on the square footage of the ballroom, given owners would squeeze far more dancers into the ballroom than they should. They were overwhelmingly in favour of this until my father told them that back in the 1920s there had been a tax on cars and the motor industry called for a tax on petrol instead. The Government of the day said "What a good idea" and promptly taxed petrol as well as cars. Needless to say, the whole effort fell apart. Therefore, I am loath to ask the Minister to tax petrol rather than cars because somebody in the Department might suggest something else.

On the issue of taxation, the Revenue Commissioners collect income tax, the universal social charge, capital gains tax and corporation tax. Local authorities meanwhile collect commercial rates, business improvement tax, district tax levies and the non-principal private residence tax. An Post collects television licence fees and dog licence fees. Imagine that: we still have dog licence fees. The Private Residential Tenancies Board collects the residential landlord tax, and all of this is without mentioning new taxes such as water charges and the septic tankcharge.

The various tax collection systems seem to be highly inefficient. In France, for example, rates are collected with electricity bills. In addition, people who do not have television sets must opt out of the licensing system rather than opting in, although I accept the system here is changing. One of the most blatant examples of inefficiency is the motor taxation system. While I am not going to oppose the Bill because it is certainly coming through in a manner we have to accept, it does not seem to make sense. I would like the Minister for the Environment, Community and Local Government and the Minister for Finance to get to work on finding whether we can have a better, more efficient and more sensible way of collecting taxes.

Senator Denis Landy

I welcome the Minister. Without repeating what other Members have said, I would like to make several points on the Bill. I have met people from both sides of the car ownership divide — those who have CO2 efficient cars and those who cannot afford to have them — and both sides have their own particular viewpoint on this issue. I recently met a lady who purchased a car last year specifically because of the low emissions and the low tax, and she had an issue because the tax had been increased in the budget. The flip side of that coin is that I have met numerous people who said they would love to have the money to buy a CO2 friendly car, which generally means a new car as there are very few of them in the second-hand market. They feel they have been badly done by the fact that they are not availing of the low tax. One is damned if one does and one is damned if one does not. In this instance, the increase is 7.5% which equates to less than 2% per annum for the four years since the introduction of the new tax code and, in that context, it is not a large increase.

The tax revenue from motor taxation is shrinking quickly given that there are fewer new cars on the roads and fewer people motoring. In many households where there were two cars now there is one. I listened to a gentlemen yesterday on "Mooney Goes Wild" who appeared on "Dragons Den" the previous night, which I did not watch, who apparently had a great initiative in respect of watches. He was bemoaning the fact that his wife had to sell the car to provide money to pay for the patent in Kilkenny where the Patents Office is located, apparently.

We have had much discussion on the household charge. I am amazed at those at a high level in the media who do not know the purpose of the local government fund or how it is disbursed. The money from taxation goes into the local government fund and is part of the equalisation fund which is distributed to local authorities to provide the services. We have said consistently that areas of high population cannot have all the services while areas of low population are denuded of services. The fund helps ensure that funding is provided for areas along the western seaboard, the south and south east. While none of us supports taxation increases to any great extent, the Minister has been faced with the challenge of finding ways of increasing the income of his Department and making provision to deal with the large bill left to the country, and he has done a good job on this occasion. I hope the diversion of this tax from the local government fund to the Central Fund will be a once off measure. I ask the Minister to comment on that issue because there are practitioners in local government who are concerned this might become a trend rather than a once-off measure.

Senator Trevor Ó Clochartaigh

Cuirim fáilte roimh an Aire. Ba mhaith liom a rá i dtús báire go bhfuilimid i gcoinne an Bhille seo ina iomláine. Is é sin an fáth nár chuireamar síos leasú ar Chéim an Choiste. Is dóigh linn go gcuirfidh sé isteach ar na daoine is boichte inár sochaí, go háirithe iad siúd sna ceantair tuaithe.

In retrospect, the Government will go down as the most anti-rural Government ever in the history of the State, and this tax increase is another example of that. Apart from the fact that it is unfair, as outlined by previous Senators, those who bought into the green policy of going eco-friendly by buying relatively expensive cars on the understanding that they would have them for a number of years have seen the goalposts shifted with the result that they will have to pay extra car tax, which is very unfair on them. We must take cognisance of the measure in the broader state of affairs. Given Senator Cáit Keane's expertise and knowledge in the car area, we will have to rename her "The Stig" Keane.

Senator Cáit Keane

I have been named worse.

Senator Trevor Ó Clochartaigh

Not by us. Senator Keane said all the taxes must be considered in the global sense. She is absolutely right. We have to ask why this and other measures are being introduced by the Minister to fund local government. It is because we are still paying off bondholders and are potentially paying off promissory notes, if a deal is not done by the end of the month.

Deputy Phil Hogan

It is going well.

Senator Trevor Ó Clochartaigh

As Senator Keane said we must have our cake and eat it. Some people are getting more of the cake than they should be allowed.

Deputy Phil Hogan

The Senator will eat humble pie on the promissory note.

Senator Trevor Ó Clochartaigh

One is only kicking the can down the road on that issue.

Deputy Phil Hogan

The Senator will eat humble pie in respect of it.

Senator Trevor Ó Clochartaigh

The Minister is asking our children and our children's' children to pay it at extra interest.

Deputy Phil Hogan

The Senator and Sinn Féin were wrong in regard to it.

Senator Trevor Ó Clochartaigh

We will not go into the whole idea of who is right and wrong. The Minister is eating into my time because he knows I wish to raise a number of points. This is an unfair tax on people living in rural areas because, as the Minister will know, they depend on their cars. Last week we had a debate with the Minister for Finance, and Senators on the Government side hopped up and down about the question of the price of petrol and diesel increasing to exorbitant levels, that people cannot afford to go to work and businesses are closing. Not one of those Members raised that issue with him when we discussed the Finance Bill last week. The price hike has hammered people in rural areas who depend on their cars to get around and now we are talking about introducing an extra tax on those people. At the same time there are cutbacks in school transport, Bus Éireann has cut routes to rural areas and another element of the Government is conducting the centralisation of services. Recently we had a meeting in Galway with the HSE and because of the cutbacks and job losses in the executive, people must go to central centres for services like dentistry and nursing. It makes people travel a lot more, thus costing them money. The proposal is unfair to those who depend on their cars to get around.

I note that Senator Landy discussed the people who have reduced from two cars down to one. We must take into account the other cohort of people who do not own a car, those who have emigrated or do not have a car on the road. People in rural areas are leaving in their droves due to the Government's policies.

Senator Quinn mentioned the potential for a tax on petrol and diesel. Last week when I asked the Minister for Finance what percentage of the cost of a litre of diesel or petrol was tax and excise duties, he could not tell me because he did not know. Even though he had a cohort of about 30 advisers sitting outside the door to the Chamber, he said he would revert to me on it. An estimated 53% to 80% of the price is excise duty or goes to the Government. Therefore, it is incorrect to say that we do not have a tax on petrol or diesel. These costs hammer people who travel more often and are more dependent on their cars because of the lack of access to public transport.

From our perspective, this is one of a heap of measures that the Government intends to introduce, including the household tax, cutbacks in the rural transport service——

Senator Denis Landy

Sinn Féin said it was not against the household tax.

Senator Trevor Ó Clochartaigh

——and the tax on septic tanks.

Deputy Phil Hogan

It is only for the North.

Senator Trevor Ó Clochartaigh

The school transport service has been cut back and there have been cutbacks in rural schools. The Minister is hammering rural communities left, right and centre.

Senator Denis Landy

Sinn Féin said it was not against the household tax.

Senator Cáit Keane

Tell us where we can get the money.

Senator Trevor Ó Clochartaigh

Very simply, we have said it many times and it was made obvious in our pre-budget submission that there are options available. I will use the analogy of a lot of people eating a large amount of cake who are not paying their fair share. The Government could put a wealth tax on people, create a third rate of tax for people earning in excess of €100,000 and cut the level of pay of senior civil servants. The Minister for Health would prefer to leave the consultants on their current wages rather than tackle the issue. The Government should tackle real taxation issues and stop hammering rural people and those on lower incomes.

Senator Cáit Keane

That is what we are doing. We are being realistic.

Senator Deirdre Clune

I am glad to have the opportunity to speak on the Bill. As has been said, it is merely an implementation of the financial resolution that was passed by the Dáil last December and today we are providing the legislative facility for it.

Senators have mentioned that the Government is taking money from everywhere. There is at least an €18 billion gap that needs to be bridged and the money must come from somewhere. We all know the financial situation. When the motor tax levy was introduced in 2008, it was said it would be revenue neutral but it did not turn out that way. In 2008 €1.06 billion was generated from receipts but last year and in 2010 the sum was reduced by €50 million. As the Minister has said, this is unsustainable.

It is important to point out that the polluter pays principle is still enshrined in the proposed rates. Therefore, a lower tax will apply to cars with lower CO2 emissions and different engine capacities. This principle must be encouraged. I welcome the fact that the Minister is considering a complete review of motor taxation. That is important. There have been changes in the types of vehicles, but they are all using roads which must be paid for. I hope toll roads pay for themselves and sometimes they pay over and above their cost, but the road system in general must be paid for. Roads in cities such as this are relatively small in terms of mileage and they have many users. However, County Cork has the largest road network in the country——

Senator Trevor Ó Clochartaigh

Plenty of potholes.

Senator Deirdre Clune

——and when one drives the highways and by-ways one can see what must be done with these roads for the communities they serve.

Senator Denis Landy

The Senator's party produced the biggest potholes in the country in the North.

Senator Deirdre Clune

That is where motor tax and the local government fund are spent. There is constant demand and every year members of local authorities and public representatives have a list of roads that require resurfacing.

On the issue of emissions, in November last year the Environmental Protection Agency, EPA, produced its report on our CO2 emissions and outlined where we stand with regard to our Kyoto Protocol commitments. Emissions from transport were down. The agency acknowledged what we all know, that there are fewer vehicles on our roads. It is not surprising, therefore, that emissions decreased by 10% in 2010 from the 2009 figure. There has been a significant decrease in emissions since the peak of the boom in 2007. This is due to there being fewer vehicles on the roads and the previous motor taxation regime which encouraged the use of cars with reduced CO2 emissions, which was successful.

Transport accounts for 19% of our overall emissions, in third place after agriculture and energy. Our energy consumption is also down due to decreased activity. Based on the first three years of the Kyoto Protocol, which ends this year, the EPA says Ireland is on track to meet its Kyoto Protocol obligations when the impact of the EU emissions trading scheme and approved carbon sinks is taken into account. The decrease in emissions, particularly from the transport sector, contributed to that. I wish the Minister well as we move to the next phase of meeting our EU targets by 2020, which I expect to be very stringent.

This is relatively short legislation. It is very clear. The finance to be raised by it is expected to be €64.5 million. I look forward to the review of the entire motor taxation system. It is interesting that the economic indicators produced by the Library and Research Service show that the number of new goods vehicles licensed for the first time increased by 9.4% this year over last year. However, the number of new private cars is down, as the Minister will be aware.

Senator David Norris

I welcome the Minister. This is quite a technical Bill to read. The language is complicated and convoluted. I can give one random example which would do credit to the late Myles na gCopaleen. Section 7(c)(ii) states, “in respect of which the rate of duty that would have applied to it under subparagraph (d)(i), if that subparagraph had been in operation when it was so registered and had applied to it, is less than the rate of duty specified in relation to it in subparagraph (e)...”. That would have been gloriously appropriate in “An Crúiscín Lán” when I used to read it. I am not professing any enormous capacity to follow the labyrinthine drafting of this Bill, although I do not intend to criticise the people who drafted it. I am just making the point that it is a complicated exercise, but the motivation behind it is uncomplicated. The motivation is to raise money. I am worried, however, because it is clear that in the first instance this money will not go for the provision of services to those who pay for them — at least, not for automobile drivers. That is a bad principle because once one establishes a procedure, it becomes extremely difficult to reverse the trend. This is particularly so with the Department of Finance which is a fairly tough, if sometimes inefficient, Department. If in year one, the revenue generated goes to the Exchequer, in my opinion — I hope to be proved wrong — there is a strong likelihood that it will continue to go to the Exchequer. It would be a serious sign of the deterioration of living standards in this country if roads continue to disimprove. I could go on about that at length but I will not because it is only marginally relevant.

My difficulty with the Bill is that it does not follow another principle, which I addressed when a previous Minister was sitting in the current Minister's chair. Mr. Gormley introduced legislation which did not follow the polluter pays principle, which he so often advocated. I suggested for that reason that it would be much more logical, if one believed in environmental protection, to increase the duty on petrol and diesel. I am a realist and recognise that in circumstances where so many people are experiencing straitened situations with regard to their personal finances, this may impose a difficult burden for them and it could also impede industry. I know all the arguments but at the end of the day that is the one thing that addresses the matter directly.

I want to declare a personal interest in this matter. I have a very beautiful motoring car. It is a Jaguar XJ6, which I bought for €6,000. The combined annual tax and insurance on it is €3,000. I use it once a week to go to St. Patrick's Cathedral and then to the club for lunch. That is it, unless it is pouring rain or I have an enormous amount of documents to bring to Leinster House. Apart from that, I walk and why would I not do so? I live within a mile or so of this building. However, if there are any more increases I will pay every single year in tax and insurance what I paid for the car originally. That would be completely and absolutely daft. If the tax were levied on fuel, however, I could continue to enjoy my car. It is probably the nicest looking vehicle in the Leinster House car park and is also certainly the cheapest. I know this is just one person's argument, but it is an argument with which other people in the same situation might also agree.

I accept we are in a difficult situation and understand this is a revenue-generating measure. I have concerns, however, that it may never revert to being something that pays for motorists' interests. I do not see the logic of increasing taxation on old motor cars — that are pleasant to drive and are kept in immaculate condition — to such a level that it becomes impossible to maintain them.

Senator Michael Mullins

I welcome the Minister to the House. I am surprised this legislation has come before us at all because my understanding was that once the budget was passed this was the law of the land. I was, therefore, a little surprised this morning to see that we were going to discuss this Bill. We all want to reduce CO2 levels and I applaud what the previous Minister for the environment was trying to do.

The level of road tax applicable to new cars was not sustainable in the long term and that is what we are now seeing. The Minister is adjusting the rates to take account of the fact that we are about to see a significant reduction in local government revenue. No one wants to see taxes increase, but we all know the tax base has been eroded in recent years, while people still want the same level of services and benefits under various schemes.

My good friend, Senator Trevor Ó Clochartaigh, is in the happy position where he can be opposed to everything.

Senator Trevor Ó Clochartaigh

That is totally untrue.

Senator Michael Mullins

The Senator is opposed to any increase in taxation.

Senator Trevor Ó Clochartaigh

Not at all. We would love to see a wealth tax being introduced.

Senator Michael Mullins

The Senator is out and about telling people not to pay the household charge.

Senator Trevor Ó Clochartaigh

No, I am not.

Senator Michael Mullins

The Senator talks about the Government being anti-rural Ireland. He is anti-rural Ireland. On a regular basis he encourages people to travel to Dublin to protest outside Leinster House and to attend protest meetings all over the country.

Senator Trevor Ó Clochartaigh

They all come on buses.

Senator Michael Mullins

The Senator is costing them an absolute fortune. To oppose a €5 septic tank charge he has cost people several hundred euro in train and bus fares and petrol charges.

Senator Trevor Ó Clochartaigh

What about the thousands it will cost people to change their septic tanks?

Senator Michael Mullins

People will, eventually, see through this. Many in rural Ireland have already paid as much as the household and septic charges in coming to Dublin to protest about them and they will still have to pay them.

I must correct my good friend, Senator Trevor Ó Clochartaigh, on something he said about our debate on the Finance Bill. I raised the issue of tax on fuels and raise it again today. As the cost of fuel increases, can a cap be put on the level of excise duty levied by the Government? Given the decreasing tax base, I know this is a difficult issue.

Senator Trevor Ó Clochartaigh

The Senator voted for the Finance Bill in which the increase was imposed.

Senator Michael Mullins

I did. However, I raised this matter when the Minister for Finance was in the House. The Senator talks about taxing the wealthy, but who are they? Are they the people who were lured into buying an extra house or two? They were encouraged to do so by the Government and financial institutions and are now left with property worth a fraction of what they paid for it and on which they are paying mortgages. Are they retirees who were encouraged to invest their retirement lump sums in Bank of Ireland shares and now see that money has disappeared? People whom we thought were wealthy a few years ago are the new poor. It is populist to say, "Tax the wealthy," but the wealthy make up a much smaller proportion of the population than heretofore.

Senator Trevor Ó Clochartaigh

I will send the Senator a copy of Sinn Féin's pre-budget submission. It is very clear.

Senator Michael Mullins

We need to think about these issues as we discuss taxes.

It is welcome that the level of tax on vintage cars is not increased in the Bill. These cars add to the attractiveness of many shows and events. In my own town of Ballinasloe there is an annual vintage car rally which draws large numbers of people to the town and generates economic activity. I would hate to discourage those who maintain vintage cars and give us a glimpse of how beautiful these old vehicles are. They might not travel as speedily as the cars now being manufactured, but they add to events and activities in towns and villages. I would like to see this side of the motor business being maintained. I am happy to support the legislation.

Minister for the Environment, Community and Local Government (Deputy Phil Hogan)

I thank the Senators who contributed to the debate. While I recognise that any increase in taxes is always unpopular, it is an unavoidable fact that the new CO2-based system introduced in July 2008 by my predecessor has resulted over time in a decline in motor tax receipts. Instead of the switch being revenue neutral, which was advocated at the time, while also providing an environmental incentive towards more fuel-efficient cars, the structure of the tax is such that we will take in progressively less over the years. Without the budget increase, the completion of the switch to CO2 taxation in the next 15 years will have the effect of shrinking the tax base by 50%. That would cause a consequent knock-on effect on the provision of services by local authorities.

There is a serious challenge in the current circumstances and failure to rectify the problem of reducing income from motor tax would transfer the load elsewhere in the economy to income tax or reduced allocations. Further, it is clear that the rates for the lowest CO2 bands are well out of step with their older comparators in the cubic centimetre taxation system. It is necessary to take steps towards equalisation. In the current circumstances the equalisation must, unfortunately, be upwards. In taking this step, however, we have ensured to the greatest extent possible that the rates of tax for the majority of cars taxed on the basis of CO2 emissions remain lower than what would have been charged under the older system based on engine capacity. That is evidence of our strong desire to maintain an appropriate environmental incentive while starting to rectify the difficulties created by the tax structure which was put in place in July 2008. Any further changes to the private vehicle fleet will be considered in the context of the review of the carbon banding for vehicle registration tax, VRT, and motor tax. I expect the review to be completed by the middle of the year. In carrying out the review our priorities will be to ensure that the positive environmental impact of the existing basis of taxation will be carried through to the future while simultaneously ensuring the protection of the tax base. I assure Members that the Government will give continuing priority to the maintenance of a low carbon emission economy.

I wish to deal with issues raised by Senators in the course of the debate. Addressing the need to counteract climate change is a priority for the Government. I announced processes in this House some time ago which will lead in due course to a suite of measures on legislation to meet our national obligations, and our contribution to the global effort to reduce greenhouse gas emissions is paramount. The rates of motor tax provided for in the Bill are entirely compatible with the principles and commitments outlined previously.

Reference was made to electric cars. The move to electric cars is compatible with the plans to move to lower carbon electricity. With more electricity being delivered from low or zero carbon sources in future, this will mean progressively lower emissions both from electric cars and the sale of such cars through the motor trade sector.

I agree with Senator Quinn's point that we could do more in terms of the efficient collection of moneys regardless of the source in local government. I am examining ways in which we could achieve greater efficiency of collection across the board on local sources of income which are required and needed in the local government fund and in the local government sector generally for the provision of essential services.

A total of 33 submissions were received on the VRT, carbon banding and motor tax review from a mix of interested parties. They include the motor trade itself and other elements of the motoring industry such as those in the vintage trade to whom Senator Mullins referred. The same 7.5% increase will apply to them as to everyone else. They are not immune to increases in taxation either.

The Bill provides for a once-off transfer of €46.5 million to the Exchequer in 2012. If we wish to do it in future years it must be voted through again. The measure applies to 2012 only. It is not the case, as Senator Norris might have indicated, that €46.5 million will automatically be available again in 2013. Senators will understand that I cannot comment on what the Government will do in 2013. That is a matter for the Minister for Finance to decide in terms of the competing priorities. Members will accept that we are in difficult times and people recognise that.

Various Members suggested the abolition of motor tax and the introduction of a system of fuel charges. There are arguments for and against the proposal. However, in the context of the current high cost of fuel, it would not be the most appropriate time to do it. The competing demands are the elimination of evasion, a saving of Garda time and the necessary increase in the cost of fuel to compensate for the loss to the Exchequer. It is estimated that fuel would have to increase by at least 20 cent a litre over and above the changes in the budget to compensate for the abolition of motor tax. The potential impact on various categories of road users would have to be carefully evaluated, in particular on commercial users, in a difficult economic climate and on rural road users generally. A total of 13% of the national fleet comprises goods vehicles and these, together with public service vehicles and buses, are high users of fuel or high mileage vehicles which would have higher costs under a pay-as-you-drive system.

The potential impact on business competitiveness is also clear. A significant increase in fuel duty would lead to an increase in cross-Border fuel purchasing, further depressing the tax base and requiring compensatory adjustments to be made elsewhere. With such an increase, the potential for an increase in the level of fuel laundering is also clear.

I thank Senators for their contributions. This is a revenue-raising measure in order to deal with the deficit in the public finances that we must bridge. Regrettably, this must be done. It is a source of revenue that is essential to rebalance the system to ensure we protect the local government fund and the provision of local government services.

Question put and declared carried.