Amendments Nos. 143 and 146 are related and may be discussed together.
SECTION 78.
I move amendment No. 143:
In page 105, between lines 12 and 13, to insert the following:
"(a) in paragraph (a), by the substitution of ‘2,200 cubic centimetres' for ‘2,012 cubic centimetres',".
This amendment deals with vehicle registration tax. Up to now, we have had two rates of vehicle registration tax. If the car engine size is over 2012 cc, the rate of vehicle registration tax is 29.5 per cent. If it is under 2012 cc the VRT is 23.2 per cent; it is quite a big difference as the VRT is 6.3 per cent higher.
In relation to first principles, it is fair that there would be a higher rate of tax on a Mercedes than on a Morris Minor. I can see some general progressive element in the tax code for that. However, there have been a number of developments in relation to the motor industry which would call on the Minister to review the cut off point at which the threshold would rise from one rate to the other. My understanding is that this threshold was introduced in 1982 when there was an energy crisis and the larger cc engine vehicles were gas guzzlers. It is estimated that the effect on the retail price of the differential is 9 per cent in the price to the consumer.
In Britain the benefit in kind rules were changed in April 1994 in the Chancellor's budget. The change means that their benefit in kind is based on the value of the car and not the cc. This means that there has been a revision in future engine development. There will be no more of what are called hybrids — those with 1999 cc engines because the break point was previously at two litres.
Catalytic converters require a stronger engine to maintain the power, it is reckoned that that is an extra 200 cc. My amendment seeks to raise the threshold from 2012 cc to 2200 cc. I am not saying that is the best figure. If the Minister wanted to raise it to 2400 cc or 2500 cc I would be happy to withdraw my amendment.
In passing, I must pay tribute to Mr. Moran from the Minister's office who, while the Minister was enjoying the delights of the Eurovision Song Contest, was busily faxing me 140 pages of revised amendments to this Bill. One of the more pleasing amendments which I received was in relation to section 78 and reads:
On page 105, between lines 22 and 23, to insert the following new subsection:
"(2) As respects vehicle registration tax levied and paid on and from the date of the passing of this Act, paragraph (a) of subsection (3) inserted by the Finance Act (No. 2), 1992, of section 132 of the Act is hereby amended by the substitution of ‘—— cubic centimetres' in substitution for 2,012 cubic centimetres"
The Minister is full of good intentions but what is the blank? When I read this document I find that what Mr. Moran faxed to me on the night of the Eurovision has disappeared. It seems that the Minister's good intentions have run aground. During the briefing session with the officials on Tuesday afternoon, I quizzed them as to the magic missing figure in the blank. I was told that it should not have been there and that I should not have spotted it.
There is a large employing unit in my constituency, Wexford Electronics which employs 400 people and has a vested interest in this issue. The Minister can appreciate that I do not think it would be unreasonable to make this modest change. It will mean that new cars, which are available in the UK, are at the margins of these thresholds and will be available here. At the full Irish breakfast we had this morning at the SIMI, the Minister said that car sales are up by 48 per cent in the first quarter of the year. If that is so why not keep the ball rolling by amending this threshold? It would allow in the type of cars which have catalytic converters and which are just over the 2012. It would be uneconomic to bring them in at the 9 per cent higher price, and that is the bottom line. It is a fair case and a minor adjustment. I ask the Minister to accept it.
When I came back from the Eurovision on Saturday night, I did not have the same intellectual acuity as Deputy Yates clearly had at that point. I did not pick up the fact that the Minister was so favourably disposed but I am not surprised. I indicated on Second Stage that I would also put down an amendment to this effect. Clearly, I did not manage to get it on the amendment list for whatever reason but I support Deputy Yates.
I presume the Minister will explain his resistance, if he intends to resist it in terms of wider implications in the car industry. Off the top of my head, I cannot see the case. Deputy Yates explained the implications of this amendment in terms of the catalytic converter and the implications of a more environmentally friendly car being penalised because cc is above the present threshold. I do not support the SIMI view that the threshold should be removed. It is correct that there ought to be a threshold. However, if we hover about the size of car that is penalised in this instance, I cannot see that because there are engineering improvements which are environmentally friendly and we should penalise them in terms of the tax regime.
I am conscious of the fact, and I am sure the Minister is aware, that we have all been lobbied on this point and not with inconsequential arguments in terms of employment. The Minister must fear that there will be some knock on effects or other implications for the industry. It appears that whether the cc is 2200 or whatever it ought to facilitate this case. I do not understand what adverse implications it would have. If the Minister struggled with this over the holiday weekend and failed to come up with a specific amendment. I presume there must be some problem. It is a pity if there is a problem. I support the sense of what Deputy Yates said.
I intend to be brief because I have had many discussions on this issue with people who shall remain nameless for the purposes of trying to facilitate the difficulty in Deputy Yates's constituency. I am well aware of the problem but the 400 jobs are not at risk as a result. The Deputy is aware of this point and people from the company concerned have it explained to me how the matter is of considerable importance to them.
When it comes to these motor industry issues, we deal with the Society of the Irish Motoring Industry. I spent a considerable amount of time, both with it and others, trying to do what they should be doing. It is not my job to try to work out compromises between competitors but I made an effort and tried to be helpful. I was prepared to sympathetically consider the case that was made to me for a modest increase in the VRT rate threshold, provided the motoring industry generally was prepared to support the change.
I spent much time over the past number of weeks trying to reach this point of 2200 cc, as in the amendments and based on what Deputies from all sides asked me to do. The industry has not agreed, although I indicated the position of the 2200 cc. The industry clearly indicated to me, no later than today, that an increase of 2200 cc. or anything close to it would cause severe difficulties. It is obviously concerned, as Deputy Rabbitte indicated, about market distortions which would result from such a change. I have to respect that view.
I have tried on three separate occasions to reach a position while not holding to the 2200 cc. The motor trade has told me it would wish to see either the complete abolition of the threshold, for which I note there is no support from the committee, or at least a substantial increase in the existing cut off point. I could not agree because they are not insignificant changes, although I was prepared to move that change. I then proposed to move substantially in an effort to be helpful, to the Members of the House, to people outside and to the individual firm. I spent a great deal of time trying to assist — even though it is not necessarily my position to do that — but I still could not get agreement. There was still the higher quote, with which I do not want to deal because I was in the process of doing my old job and trying to negotiate, but even then a distributor objected to it. This is where the matter lies and that is why I left the blank.
I appreciate the Minister's efforts. Obviously, he has acted honourably and with good intentions. He has more information than I but if I was the Minister I would have to reflect that it would not be up to a trade organisation to dictate my decision. In fairness, if a reasonable argument is put forward and if one accepts its bona fides, ultimately the decision lies with the Minister and the Government, in conjunction with the officials. It does not lie with the trade organisation, particularly where it has failed to take a lead in the matter.
In blunt terms, a number of years ago, this was the position of the same trade organisation. In 1992, it lobbied along these lines. It has changed its tune and it is inconsistent on this issue. The potential loss to the Exchequer involved in this change is very small. It is a case of giving the customer a wider choice. I am very disappointed.
I am told that the total number of cars sold between 2000 cc and 2500 cc represents 1.35 per cent of the total car market. We are dealing with a modest number of cars. Is it not possible for the Minister to agree to a change this year and go back to the SIMI and say he will review it next year? Would that not be a compromise?
As the House knows, prior to the budget this year and every year, there has been a practice whereby SIMI on behalf of the industry have their open days and occasions when they lobby Members of the House. It is not a question that they are dictating; we respect their views and have worked with the industry generally. In this case I made our views very clear. The difficulty about the percentages between 2 and 2.5 is that while it is a small proportion it happens to be the proportion of the expensive cars. The question has to be asked in the debate — and I am not talking here about any one particular sphere because that is not the issue — whether there shall be a tax advantage for very large cars. That is the greater issue it is not the one we were trying to resolve. The position lies there today and while I have had the latest letters I have made it clear that I have an open enough mind. Perhaps we could leave it there for today.
I withdraw my amendment and I ask the Minister to try to make one last effort between now and Report Stage next Thursday. I will be re-tabling my amendment on Report Stage in the hope that something can be done.
I want to be straight about this and I might as well say it for the record rather than have somebody writing about it afterwards. I made such an effort to try to sort it out on one side that others have already asked what was the Minister's vested interest in sorting it out on the one side. Before we read it in some article somewhere I want to put it on the record that the Minister had no vested interest other than the jobs in Deputy Yates' constituency.
Both the Minister and Deputy Yates have made it clear that if the outside bodies would agree, he would be willing to accept an amendment on Report Stage. It is in other people's hands to come up with an agreement in order to allow the Minister to go ahead.
Amendment, by leave, withdrawn.
Amendments Nos. 144 and 145 are related and may be discussed together.
I move amendment No. 144:
In page 105, paragraph (a), line 13, to delete "29.25 per cent." and substitute "25 per cent."
The Minister has made great play about the reductions he has made in vehicle registration tax. Over lunch I got an irate call from some drivers' association wanting to know what my party's position was about the abolition of VRT. I think we are the only country in Europe that has VRT. The Minister has made a very small change by reducing the VRT rates by less than a couple of percentage points: 25 to 23 per cent and 31 to 29 per cent.
It is worth £27 million.
Out of £1.3 billion in motoring taxes you can live with that. The point is that to me £27 million could be a lot but to you, Minister, with £10.5 billion in tax receipts I think it is not so unmanageable.
If I recall, the total of the Deputy's amendments yesterday, for one day was £430 million and he was only surpassed by Deputy McDowell——
Who in one amendment alone had £680 million.
£27 million turns into a lot of money when in one day you have to turn up with £800 million.
You know, Minister, I would deal with the spending issues that you had such great difficulty with in Government.
You would, you would double the national debt again.
My amendment seeks to set a more realistic level of VRT at a 25 per cent rate and a 20 per cent rate. We have been through the arguments before; this would stimulate new car sales. The motor industry has a very substantial pent up demand because of the slump it has been in over recent years. It is a very labour intensive industry. There is a direct relationship between extra car sales and more jobs in the sector.
If they all had new cars there would be no maintenance and fewer jobs.
As you know, there is a trade-in factor. For every new car sold there is a knock-on effect so that someone else is trading in a car. I would see great benefit given that the Minister has had a rattle on the petrol; he has done nothing on the BIK and has not been able to change the c.c. side. Perhaps the Minister could look at VRT and see what could be done as well as meeting me on the capital allowances. I do not know how the SIMI could be so hospitable to you, Minister, with their full Irish breakfast this morning when I consider what should have been done to help them.
Employment in the retail motor industry is very substantial. For example, in workshops alone you are talking about the guts of 6,000 people, with nearly 2,000 in the spare parts sector. A further 2,000 are employed in sales and the same in administration. Around the forecourts of petrol stations some 10,000 people are working while at the wholesale level, including distribution, there is a minimum of another 1,000 jobs with the same in the related oil business. I could go on, but overall employment in the sector is between 35,000 and 40,000. That is a substantial sector of employment, all indigenous and all Irish-owned. We are talking about retail motoring which is capital intensive and we should be moving towards European harmonisation of car prices.
I remember back in 1972 — I was not in politics at the time, I was still at school — that one of the big selling points for going into Europe was that we were going to get cheaper cars. Needless to say, when the opportunity presented itself the bogey of VRT deprived the Irish public of cheaper motoring. Maybe the Minister will not accept it this time around but perhaps he could give a commitment for next year, to follow on this year's marginal adjustments with the objective of lowering VRT to 25 and 20 per cent over the next year or two.
If we were to bring the tax rate down to 45 and 25, the VAT rate down to European levels, have the cheapest petrol in Europe and no VRT, I suppose we could do away with having to work then because we would have a great utopian society. Seriously though, to do away with VRT would cost £200 million.
The amendment calls for a 25 per cent VRT rate.
Is that not bad enough without doing away with VRT or working towards it? There is one issue between ourselves and SIMI that we are trying to conclude which is a minor one compared to what we are in agreement on. This year petrol has actually gone down with all the reductions. Last year VAT went down from 16 per cent to 12.5 per cent. The changes in VRT this year will cost £27 million. There are increases in capital allowances not to mention the hundreds of millions we are spending on repairing roads. What we are doing for motorists is unbelievable. The effect of the amendment would be to reduce the rate of VRT on motor cars with an engine capacity of less than 2,012 c.c. from 22.2 per cent to 20 per cent, and on those with an engine capacity in excess of 2,012 c.c. from 29.25 to 25 per cent. If adopted, this amendment would cost the Exchequer £15 million this year and £38 million in a full year. In addition to the £25 million already foregone by the Exchequer on reductions introduced in this year's budget, this would give a total annual Exchequer cost of £63 million in a full year. Apart from budgetary cost dimensions it is highly questionable whether, in the face of strong performance in new car sales, that that would be appropriate. Different figures are being quoted. I thought the increase was about 30 per cent for the first four months and not as high as some of those quoted.
After talking with individual members and the executive and president of SIMI, I am satisfied that the rates reduction announced in the budget is, in conjunction with improved interest rates and the environment of consumer confidence, contributing to the considerable growth in new car sales recorded this year. However, this issue is kept under review on an annual basis. As a nationally organised group, SIMI probably has the longest record in making pre-budget submissions. They do so in a united way and, while they do not dictate, they are a helpful body. Whatever difficulties we have can be resolved, if not now, in the course of 1995. These matters are kept under review during the year.
Amendment put and declared lost.
Amendments Nos. 145 and 146 not moved.
Section 78 agreed to.
Sections 79 and 80 agreed to.