Dáil Éireann díospóireacht -
Wednesday, 20 Feb 2008

Vol. 647 No. 4

Motor Vehicle (Duties and Licences) Bill 2008: Second Stage.

Minister for the Environment, Heritage and Local Government (Deputy John Gormley)

I move: "That the Bill be now read a Second Time."

The purpose of the Bill is twofold: to provide a permanent legislative basis for the motor tax increases that were approved by Dáil Éireann by way of financial resolution on budget day, 5 December 2007; and to give statutory effect to the new carbon dioxide, CO2, based motor tax system for new and pre-owned imported cars registered on or after 1 July 2008, which I announced in my carbon budget on 6 December 2007.

The Bill contains seven sections and one Schedule. Taking the motor tax increases first, the Bill is the necessary follow-up to the financial resolution passed by this House on 5 December 2007. The resolution has only limited statutory effect and is required to be replaced by a Bill to provide a permanent legal basis for the motor tax increases. The increases took effect from 1 February 2008. The increases are 9.5% for cars below 2.5 litres and 11% for cars above that threshold. Motor tax on goods and all other vehicles also increase by 9.5%, with no increase for electric vehicles. Duties for trade plate licences also increased by 9.5%. These are the registration plates used by motor traders on vehicles which are temporarily in their possession.

The increases in motor tax rates must be considered against the background of an increase of over 15% in inflation since the last increase in motor tax rates in 2004. For the lowest engine size car of up to 1000cc, the annual rate increase is €14, or 27 cent a week. For cars in the 1001cc to 1400cc range, the annual increase is between €22 and €28, or 42 cent and 54 cent a week. For cars in the 1401cc to 1700cc range, the annual increase is between €30 and €39, representing a weekly increase of between 58 cent and 75 cent. In summary, 95% of the car fleet, which is those with engine size of less than 2 litres, will see extra costs of between 27 cent and 98 cent a week. In the case of goods vehicles, 87% of such vehicles will see an annual increase of €24, or 46 cent per week.

As I stated previously in the House, the purpose of the changes in motor tax rates is to increase funding for local government. It is important to emphasise that the proceeds of motor tax are not paid into the Exchequer, rather they are paid directly into the local government fund. This fund, which replaced the equalisation fund established in 1997 to divert motor tax revenue directly to local government, is ring-fenced exclusively for local government purposes. It cannot be used for any other purpose. The motor tax element of the fund is supplemented on an annual basis by an Exchequer contribution paid into the fund. The fund is used primarily to finance regional and local roads and the general purpose needs of local authorities.

Deputies will be aware of the significant role which the local government fund has played in the financing of local government since it was established in 1999. Total funding for 2008 amounts to some €1.6 billion, which represents approximately 30% of local authority current funding requirements. The fund comprises two elements — an Exchequer contribution of €545 million and the proceeds of motor tax, which are projected to reach €1,080 million for 2008.

The ability of local government to respond to the ever-increasing demands for improved services in recent years clearly demonstrates the success of the local government fund. These demands have arisen as a result of an expanding population, unprecedented economic growth and higher customer expectations. Not only has the fund been successful in delivering resources locally, it has succeeded in limiting the direct financial contribution required of local communities and businesses through rates and charges.

The local government fund plays a key role in funding regional and local roads. These roads, which represent some 94% of the country's road network, serve an important economic role and they also have valuable social and community functions. While we have experienced increased urbanisation and a move away from agriculture in recent times, the network of regional and local roads is still vital in providing mobility within and between local economies and in providing links to the strategic national road network and the ports and airports which are our links with the wider European and world economy.

The impact of the regional and local road network on regional development takes on an added importance as we move forward with implementation of the national spatial strategy. Investment in strategic non-national roads is critical to developing our gateways, hubs and other growth centres. Investment within and between these centres and their hinterlands plays a key role in improving connectivity, circulation and facilitating the development of strategically-placed land banks. The programme to develop and maintain the non-national road network is not confined to urban centres. It is vital for rural communities that improvements in transport infrastructure continue to be implemented. The programme also has an important road safety dimension in the context of increased safety measures.

The National Development Plan 2007-2013, provides that some €4.3 billion will be invested by the local government fund and the Exchequer in the regional and local road network over the period of the plan. While responsibility for regional and local roads was transferred to the Department of Transport with effect from 1 January 2008, the fund will continue to provide significant resources towards the development and maintenance of the network. This year alone, €565 million will be provided from the local government fund for these roads. Together with an Exchequer provision, the total funding for regional and local roads in 2008 is €618 million. Details of grants to local authorities for this purpose were announced last Friday by my colleague, the Minister for Transport, Deputy Noel Dempsey.

With regard to 2008, I have allocated from the fund record levels of some €999.2 million in general purpose grants to local authorities. These grants are my Department's contribution to local authorities towards the gap between the cost of providing an acceptable level of day-to-day services and the income they obtain from other sources. The amount provided this year represents an increase of some €52 million over the record levels provided in 2007. It is a clear signal of the Government's commitment to the local government sector and a recognition of the importance it attaches to local democracy.

It is critically important that the improvements which have been brought about in the financing of local authorities in the past decade are built upon. In this context, the local government fund has played a key role. It must have the resources necessary to ensure that increases in funding to local authorities for regional and local roads and general purpose grants are adequate to meet demands. I want to ensure that local government continues to deliver for communities and business across its wide range of services. The additional income which will accrue from the changes in motor tax rates will assist in delivering on that objective.

There has not been an increase in motor tax rates since 2004. In that time, inflation increased by over 15%. The 9.5% increase for the majority of vehicles is well below inflation in the intervening period.

It is clear that the motor tax increases are primarily designed to increase revenue for the local government fund, and in turn, for local authorities. However, along with the changes in motor tax rates for the existing fleet, and as announced in my carbon budget on 6 December 2007, the Bill also provides for a fundamental change in the manner in which motor tax will be charged for new cars and new imports in the future. This measure gives effect to the commitment in the programme for Government to introduce measures to rebalance motor tax in favour of cars with lower CO2 emissions. It complements the new CO2 -based VRT system which is provided for in the Finance Bill.

The new CO2-based motor tax system will apply to new and pre-owned imported cars registered on or after 1 July 2008. This measure is clear evidence of the Government's commitment to tackle climate change. Climate change is profound in its implications for the planet and its inhabitants and represents a very significant challenge to society. It cuts to the core of modern living and commercial activity. The solution is clear. We must reduce human-induced emissions of greenhouse gases and we must do so quickly if we are to avoid the worst impacts of climate change. We all have a responsibility to play our part.

While in global terms, Ireland's emissions may be relatively small, it is essential that we apply the resourcefulness and initiative that has delivered very significant economic success for this country over the past decade to the challenge of adapting to a low-carbon society. Along with our EU colleagues, we have been to the forefront in bringing the Kyoto Protocol into force. Our efforts to secure global agreement on deep cuts in emissions must be backed up by a commensurate level of ambition at home. The programme for Government and the carbon budget which I delivered last December make it clear that we are up for that challenge.

Following a review in 2007 of its strategy to reduce CO2 emissions from new cars, the European Commission concluded that only limited progress had been made towards the central goal of limiting average vehicle emissions of new cars sold in the EU to 120g/km by 2012. In light of this review, the Commission announced the framework of a new strategy that sets out an integrated approach towards achieving this overall objective. The new approach proposed a combination of legislative measures; encouraging member states which levy car taxes to base them on CO2 emissions; promoting improvements in vehicle technology through enhanced research efforts; and promoting the purchase of fuel-efficient vehicles. Road transport generates about one fifth of the European Union's CO2 emissions, with passenger cars responsible for approximately 12%. Although recent years have seen improvements in vehicle technology, particularly in fuel efficiency, which translates into lower CO2 emissions, this has not been enough to stem the growth in emissions due mainly to increased car ownership and increased size. While the EU reduced overall emissions of greenhouse gases by almost 5% between 1990 and 2004, CO2 emissions from road transport rose by 26%. This was despite a reduction of more than 12% in average new car CO2 emissions between 1995 and 2004. The situation in Ireland is even starker. While road transport accounts for a similar portion of total emissions, we have seen an increase in emissions from road transport by more than 180% between 1990 and 2006. This reflects growth from relatively low car ownership levels in 1990, a trend that seems set to continue.

It is in this context that I am moving from a motor tax regime where the charge is based on engine size to one based on CO2 emissions. As I said, the new CO2-based motor tax system will apply to new and pre-owned imported cars registered on or after 1 July 2008 and will complement the new CO2-based VRT system which is provided for in the Finance Bill. Both new tax systems have been informed by an extensive public consultation process. The initial consultation document on motor tax proposed a system based on a combination of CO2 emissions and engine size. My clear view is that if we are serious about addressing emissions from cars, we need to move to a system based solely on CO2 emission levels. I am pleased to say that this view was shared by a large number of respondents to the public consultation exercise and that this approach is reflected in the Finance Bill in terms of the rebalancing of VRT.

Turning to the detail of the new motor tax system, there will be seven CO2 bands, commonly referred to as the seven white labels, A to G. The same bands will apply in respect of VRT so that there will be commonality of approach as between the motor tax and VRT systems.

The motor tax rates, which will apply to new and pre-owned imported cars registered on or after 1 July 2008, are set out in paragraph 6(d) of the Schedule to the Bill, which will replace Part 1 of the Schedule to the Finance (Excise Duties) (Vehicles) Act 1952. Rates will be graduated as cars move up through the CO2 bands, as follows. For band A, which corresponds to CO2 emissions not exceeding 120 g per km, the motor tax rate will be €100. The rate for band B, which corresponds to CO2 emissions of greater than 120 but not exceeding 140 g per km, will be €150. The rate for band C will be €290, which corresponds to CO2 emissions of greater than 140 but not more than 155 g per km. Band D, which corresponds to CO2 emissions of greater than 155 but not exceeding 170 g per km, will attract a rate of €430. The rate for band E will be €600, which corresponds to CO2 emissions of greater than 170 and not more than 190 g per km. Band F, which corresponds to CO2 emissions of greater than 190 and not more than 225 g per km, will attract a rate of €1,000. For the top band, band G, the rate will be €2,000, which reflects CO2 emissions of more than 225 g per km.

The top rate of €2,000 will also apply to a car where the CO2 emissions level cannot be confirmed by the Revenue Commissioners by reference to the relevant EC type approval certificate or EC certificate of conformity and the Revenue Commissioners are not otherwise satisfied by reference to any other document produced in support of the declaration for registration pursuant to section 131 of the Finance Act 1992. This parallels the approach to apply in the case of determination of the VRT rate for a car.

Cars registered before 1 July 2008 will continue to be taxed in future years under the existing motor tax system related to engine size. There has been some criticism that the new CO2-based system is not being applied retrospectively to the existing fleet. I have examined the issue and concluded that it would not be appropriate to do so. From the outset, the public consultation process on motor tax made it clear that the new CO2-based system would apply from a specified date and that cars registered before that date would continue to be taxed in future years under the existing motor tax system related to engine size. Retrospection would not be practicable as there is no authenticated CO2 data for the majority of the existing fleet. The CO2 values on the Revenue and NVDF systems, in respect of new cars only, have not heretofore been used for any business purpose, have not been collected as the basis for a fiscal charge and, accordingly, have not been authenticated to any degree. It would be unsound to apply charges on the basis of such data.

The application of CO2 ratings to VRT and motor tax from 1 July 2008 will place a very definite emphasis on the accuracy of the detail on the Revenue system, and consequently on the NVDF, post July 2008. If the new system were to be applied retrospectively, it would be unfair to penalise people for a purchasing decision made in the past. Nobody will pay more motor tax than they are paying at present. If there was an optional "opt in" to the new system, it would undermine the revenue base of local government, resulting in serious financial problems for local authorities throughout the country. While there will never be a solution that will satisfy everybody, the Government proposals are fair, equitable and practical.

The clear objective of this new motor tax system is to influence the purchasing decisions of consumers. Purchasers of cars with low CO2 emissions will be rewarded while a premium will be charged on vehicles with high CO2 emissions. From 1 July 2008, anyone buying a new car or importing a pre-owned car can make a choice for the environment by purchasing a low CO2 emitting car and thus enjoy a lower rate of motor tax.

Deputy Michael Ring

What about next year?

Deputy John Gormley

Alternatively, if the choice is to purchase a high CO2 emissions car, a higher rate of motor tax will apply.

For most of us a car is likely to be the most expensive thing we will ever buy, with the exception of a home. Every year, more than 150,000 Irish people decide to buy a brand new car. The prices paid by consumers range from €11,000 for the most inexpensive models to, in rare cases, large six figure sums. It is not a decision many people make lightly and most people choose very carefully when buying. Considerations such as affordability, functionality, economy, safety, performance and colour have traditionally come into play for people when deciding on what car best suits their need. From 1 July, however, when people decide on what car to buy, they will add a new factor. They will need to "think carbon". With our new taxation system for cars, this decision to think carbon can save them thousands of euro.

A key part of the motor tax and VRT initiatives will be a new mandatory labelling system for cars based on CO2 emission levels. Requirements relating to the display of information on a car's fuel economy and CO2 emissions were introduced in 2001 on foot of an EU directive. All new passenger cars offered for sale or lease in Ireland must therefore already be accompanied by a fuel economy label that displays information on the vehicle's fuel consumption and its carbon dioxide emissions. The regulations also require the publication of a guide for consumers on the fuel economy and CO2 emissions of all makes and models of new passenger cars for sale in Ireland and that similar information be included in promotional material and advertising.

Experience has shown that the existing labelling requirements are not sufficiently consumer-friendly and that an improved design would be beneficial to car buyers. It would help in assessing the environmental impacts of various cars and would provide guidance on the purchase and running costs. I am proposing therefore that the requirements on the display of a new label be changed with effect from 1 July 2008 to coincide with the introduction of the new CO2-based motor tax and VRT systems. It is my intention that this new label will include consumer-friendly information on a vehicle's CO2 emissions, based on the seven CO2 bands. The label will be similar to the energy rating label which already exists for many consumer electrical goods and which is already familiar to consumers. The label should also include information on fuel efficiency, the amount of motor tax and the applicable rate of vehicle registration tax. I will bring forward separate legislation to give effect to these proposals.

The new labelling regime will be accompanied by an active public information campaign which will promote the purchase of fuel efficient cars. My aim is to ensure consumers are fully aware of the incentives being created through changes to the motor taxation system. This will assist them in making informed decisions. These incentives are designed to arrest the trend, evident over many years, of increasing emissions from the road transport sector. This will go some way towards Ireland's compliance with its Kyoto Protocol obligations, but will also put the country on a better footing for the more demanding targets facing us in the period up to 2020.

Deputies will be aware of the importance of motor tax to the funding of local authorities. As I said at the outset, motor tax receipts are paid directly into the local government fund which is ring-fenced exclusively for local government purposes. These receipts are supplemented on an annual basis by an Exchequer contribution. Total funding for 2007 amounts to €1.6 billion, which represents approximately 30% of local authority current funding requirements.

The fundamental changes which are contained in this Bill in terms of moving to a CO2 based motor tax regime are designed to achieve financial neutrality in the context of income to the fund. We are clearly breaking new ground with the overriding objective of progressively reducing CO2 emissions from cars. As we move forward, there will be a need to keep the new arrangements under review to ensure the environmental objective is delivered while, at the same time, protecting this important source of funding for local authorities. I commend the Bill to the House.

Deputy Phil Hogan

The issue of climate change and Ireland's contribution to the warming of our planet remains squarely on the political agenda and Fine Gael continues to consider it a policy priority. Ireland has played its part in the emission of greenhouse gases over the years in a negative way and we continue to be one of the worst offenders for the amount CO2 put into the atmosphere. Total greenhouse gas emissions in 2006 were 69.77 million tonnes of carbon dioxide. For a population of our size on a land-mass of Ireland's size we have become one of the larger polluters compared to other countries. Years of Government inaction and short-sightedness have brought us to this situation. For example, we have built 500,000 houses in the past ten or 12 years without any reference to appropriate insulation or building standards to help reduce carbon emissions in that sector. Thus we are left playing catch-up to meet some of the necessary objectives.

Government failure to tackle greenhouse gas emissions has led the European Union to impose an ambitious and drastic target of reducing emissions by 20% of our 2005 level by 2020. Only two other countries, Luxembourg and Denmark, were also given the highest possible target. This is the challenging situation in which we now find ourselves but it is a damning indictment of how the international community judges Ireland's attempts to curtail CO2 emissions.

The Government is entirely responsible for the transport sector, which is reporting rapidly rising CO2 emissions. This sector showed a 5.2% increase from 2005 to 2006, which is 165% above the 1990 transport emission levels. I note the Minister's latest statistics indicate it is 180% higher than the 1990 levels. In any case, there has been a rapid increase in emissions stemming from high levels of transport activity. The Environmental Protection Agency's report confirms that 97% of transport emissions can be accredited to road transport. This is music to the ears of the Minister because we know he does not have a high regard for road users and motorists generally. This is reflected in the increases in petrol and diesel consumption rising continually year after year.

Deputy Michael Ring

The bike is no good in rural Ireland.

Deputy Phil Hogan

The increase in emissions in the transport sector is so much that it is making any overall reduction target, Government or otherwise, difficult to meet. This situation did not happen overnight and it is not a surprise to policymakers, environmentalists or even commuters. Years of under-funding and lack of investment in our public transport have cost us dearly, not only in CO2 emissions but also in traffic congestion and commuter times. I could spend the rest of my contribution detailing all that is wrong and inadequate with public transport, from delayed metro lines and disconnected Luas lines to bus monopolies. Commuters, however, are left with no choice but to get into their cars and travel into gridlock because the Government has not given them any choice. The Minister now intends to fix the transport emissions problem by increasing car tax.

This Bill is no more or less than a revenue-raising exercise. To be fair to the Minister he has acknowledged that and admits it readily. He got the opportunity to do a few other things, which I will deal with later. He could have included other matters in the legislation but primarily the Bill aims to encourage people to purchase low-emission cars after 1 July 2008 and make some impact on the current unsustainable level of carbon dioxide from car exhausts around the country. This part of the Bill is welcome and is one we can support. However, the Green Minister for the Environment, Heritage and Local Government has taken this concept and made it slightly meaningless in the Bill. The first part of this Bill — in giving a legislative basis for the motor tax increases recently brought in on all cars, based on the size of their engines — is a perfect example of the Minister saying one thing and doing another. The Minister would have us believe this Bill is the be all and end all of reducing car emissions, which of course it is not. The Bill does not reward or encourage consumers who have already made a conscious environmental decision to buy a new or second-hand car with low carbon dioxide emissions. The blanket tax increases of 9.5% for cars with engines up to 2.5 litres do not fit with the Minister's objective of encouraging people to be more environmentally aware. If the Minister was happy to increase the tax on a small car by 9.5% one could be forgiven for thinking the Minister would greatly increase the tax on larger cars but he did not do so. He only increased tax on cars above 2.5 litres by 11%. Some people may wish to purchase cars over 2.5 litres if they have the money to do so, and in such cases I would have sympathy with increasing tax on those vehicles. However, the 11% tax increase on larger vehicles will not make much difference to consumer choice.

Deputy John Gormley

So the Deputy will support the increase again next year.

Deputy Phil Hogan

I will come to that in a minute. If the Minister was serious about encouraging people to buy smaller and cleaner cars, he should have frozen the lower tax rates. At the very least he should have made up the shortfall on larger vehicles, and there would be sound environmental reasons for doing so, but he did not do that. The Bill as drafted implies that cars of 1.1 litres are as clean as those with 2.4 litre engines. Of the 180,754 cars registered in Ireland in 2007, only 10,295 were above 2.4 litres. If the Minister disagrees with my assessment of his intentions then he should introduce more graduated tax bands as part of this Bill that would reward people's choice of smaller cars in the 1.1 to 1.6 litre range. Instead, the Minister is intent on hiking small car taxes up to the same level as bigger vehicles which, in large measure, cause more pollution.

We have a lot of thinking to do as regards how we will deal with motor tax bands in future. It would seem, however, that the Minister has learned a lot in his short time in Government with his Fianna Fáil masters, as these car tax increases have less to do with saving the environment than with raising hard cash to meet the shortfall in his Department's Estimate, which he was given by the Minister for Finance, Deputy Cowen, in the latter part of 2007. This increase in motor tax represents a direct stealth tax of €83 million hitting every household and family in the country. Only €53 million of that money will be given back as an increase in this year's local government fund. He was forced to raise this revenue because the Minister for Finance said he did not have the money to give the Minister, and would only give so much. I am sure the Minister offered the possibility of raising motor tax to assist the Minister for Finance in his financial forecasts and Estimates for 2008.

Deputy Michael Ring

That is the real budget.

Deputy Phil Hogan

All the rhetoric and soft talk seeks only to camouflage the fact that this legislation is a money-raising exercise. This is not a green tax. It will not help us meet our emission reduction targets or help the environment. The only benefit is that it will help to balance the books for the Minister and for the Minister for Finance.

The European Commission sent a warning shot across the Government's bow yesterday in regard to our impending economic difficulties and expected budget deficits. Instead of properly managing the economy and raising our economic competitiveness, the Government seems more likely to take the easy option of imposing yet another stealth tax. It seeks to spend its way out of trouble when it comes to our declining finances. The price of failure, however, will be placed squarely on the shoulders of those largely responsible for the Celtic tiger, namely, workers.

The Minister spoke about the objectives of the motor tax. I am aware he does not like motor cars but these provisions suggest he does not like motorists either. Since the budget, consumers have made fundamental decisions on the choice of car to purchase based on their understanding of the provisions the Minister would introduce. However, he has given motorists who made good environmental decisions no reward for doing so. One of several letters I have received on this issue summarises the matter well. The author, Mr. Murphy, states:

As an early adopter of the green message, I ordered a diesel vehicle before the Minister's pronouncements with the full intention and knowledge that I was doing my piece for the environment. My new car's CO2 rating is certified at 128g which would mean, under the new regime, a VRT reduction from 30% to 16% and an annual motor tax reduction from approximately €560 per annum to €90 per annum.

However, the lifetime restriction means this person will not receive the benefit of acting on his environmental concerns unless he buys a new car after 1 July 2008. Motorists were given little information on the new regime.

Deputy Michael Ring

It is not fair.

Deputy John Gormley

Motorists knew in advance this would be the case.

Deputy Michael Ring

They did not.

Deputy Phil Hogan

Budgets are supposed to be secret, although we can read the details in the Evening Herald on budget day every year. God be with the days when people took responsibility in this regard.

Deputy John Gormley

God be with the days when people sent faxes.

Deputy Phil Hogan

We took responsibility for those matters. The Minister is part of a Government that takes responsibility for nothing, not even tax clearance certificates.

The lifetime restriction, whereby a low emissions vehicle is taxed heavily as against the same model purchased five months later with the same CO2 rating, is a gross injustice. The difference can run to thousands of euro. This injustice is compounded by the fact that imported second-hand cars with the relevant CO2 clearance are to be taxed after 1 July on emissions rather than engine capacity. This means a car bought in the United Kingdom on the same date as a diesel car purchased in February 2008 can be imported into the State and subsequently taxed for its lifetime at a much lower monetary rate. The system is unfair.

Deputy Michael Ring

The Minister must correct it.

Deputy Phil Hogan

Furthermore, it leaves the possibility that a car purchased in the State prior to 1 July 2008 could be exported and then imported again after that date and thus be subject to the lower taxation rate. This is an anomaly.

The Minister recently stated in a parliamentary reply:

In addition, it is essential that there is certainty and accuracy in terms of CO2 ratings. Under both the new motor tax and VRT systems, the CO2 rating will be based on the car's certificate of conformity, under EU type approval law.

In the light of this clear statement, it seems the door is open to car purchasers who have a valid CO2 certificate, prior to 1 July, to reclaim the difference in VRT between the higher cc based rate and the CO2 rate and, furthermore, to have the car's annual tax rescheduled at the CO2 rate.

There is another anomaly. Given the contribution motor transport makes to CO2 emissions, if the Minister is concerned about meeting our emissions reduction targets, why did he not ask the Minister for Finance, in the context of the Finance Bill, to reform the benefit-in-kind scheme? The more one drives, the greater one's contribution to CO2 emissions. However, anybody who requires a car for their business is encouraged to drive as many miles as possible to meet the threshold for drawing down the maximum benefit-in-kind. This is against everything we seek to achieve. A modest change to this regime would have made a major contribution. An opportunity has been missed.

I am amazed to read in one of the newspapers today about the latest conversion of the Society of the Irish Motor Industry, SIMI. It welcomed the budget announcement but has been getting it in the neck since from motor dealers as a consequence of the uncertainty that was created. The VRT changes should have been introduced on 1 January. If people are going to purchase a new car, they tend to do so in the early months of the year when the new year registration is still novel. There will probably be a spike in sales in the first several weeks after the provisions are introduced in July. After that, however, people will wait until 2009.

Motor dealers are encountering great confusion among consumers. In addition, there is no clarity from the Revenue Commissioners in regard to labelling. The Revenue Commissioners seem entirely confused as to how they will implement this regime. Like motor dealers, they have no information to give to consumers. The Society of the Irish Motor Industry would be better off trying to get answers to these questions for the benefit of consumers than belatedly seeking amendments to the scheme. I welcome SIMI's conversion to the reality of the situation, which has been related to it by dealers. The utopia it expected to arise on 1 July has been replaced by the realisation that a mistake has been made. The proposals have created genuine confusion and problems for customers and dealers. The SIMI now seeks an amendment to allow people who purchase a car before 1 July to be taxed at the new rate. We must give people the benefit for decisions they make now.

The Minister claims his CO2 based car tax system is a green tax that will reward people for buying clean cars. However, this applies only if one is well off and can afford a new car, as only those who purchase new cars can take advantage of this new system. Purchasing a new car is a major decision, which one does not make every year unless one has a company car. Consumers change their cars every three years, on average. It is a significant decision to spend a large amount of disposable income net of tax on what is essentially a luxury item but which is essential for many people given the lack of reliable public transport. The Minister has not given the benefit to those who make the purchase before 1 July, regardless of whether it is a second-hand or new car. Not everyone purchases a brand new car. As soon as one drives a new car out of the garage it has already decreased in value by some €2,500.

We must co-operate as best we can to facilitate a regime where motorists are rewarded for purchasing cars that serve to facilitate our overall objective of reducing CO2 emissions, regardless of whether they are new or second-hand or when they are purchased. There will be a significant reduction in the contribution from motor tax to the local government fund next year if people take the right action in terms of adjusting their purchases along the lines of the VRT and motor tax bands. The Minister will then have an even more difficult time with the Minister for Finance when it comes to the Estimates for 2009. We will deal with that when we come to it. This is the type of approach that must be taken if we are serious about tackling the issue.

I am sure the Minister will engage in consultation with the haulage sector. Putting freight on rail is the way to go and would make an enormous contribution in reducing greenhouse gas emissions. We have not yet heard from the Minister or the Minister for Transport how the haulage sector will be required to make its contribution to reducing emissions. I understand an announcement on sustainable transport will be made in the near future, possibly next week. Perhaps this matter can be addressed at that stage.

The Minister has resisted the calls for retrospection by claiming that it is not possible, under this legislation, to implement a regime that would allow people to benefit retrospectively from lower emissions. I suggest that there is a way around that. On 21 August 2001, one of the Minister's predecessors, Deputy Noel Dempsey, made it law that the CO2 output of a car per kilometre, as well as information on the car's fuel consumption, has to be displayed at any new car's point of sale. Therefore, information on CO2 output per kilometre for any car that is on the road since August 2001 should be known and could easily be transferred into the new CO2 car tax system. If the Minister is serious about helping those who make sound environmental decisions, he will consider using the information that is available to him.

I do not think the current proposals will help us to meet our objective of decreasing emissions from the motor transport sector. The Government's climate change strategy predicts that the rebalancing of VRT and car tax in favour of greener cars will save an average of 50,000 tonnes of CO2 a year, which is just a drop in the ocean when we are trying to save 8 million tonnes. To put it in context, CO2 emissions from the transport sector have increased by 682,000 tonnes in the past year. We could go much further with this measure, which will save just 50,000 tonnes, while meeting the objectives of the transport sector to a greater extent than we are doing at present.

I hope that the Minister will consider some of the suggestions we have made and rectify some of the anomalies we have highlighted. If he makes a meaningful effort to give financial benefits to people who are genuinely interested in doing their bit for the environment, he will get the co-operation of Deputies on this side of the House. That is the kernel of my approach. The Government's objective, as outlined in the programme for Government, of achieving a 3% reduction in carbon emissions will look like a pipe dream if we do not fast-track certain measures. We need to ensure that people feel the benefit of their environmentally friendly behaviour in their pockets. The window of opportunity that exists to avail of the goodwill of people who want to make the right decisions, in the interests of reducing our CO2 emissions, might not last for a considerable period of time. Deputies regularly receive letters from people who are concerned about the anomalies they encounter when trying to act in an environmentally considerate manner. Such problems defeat the purpose of the changes which were made to VRT and motor tax.

It seems that these measures are being introduced simply to increase motor tax receipts. Taxpayers will not feel the benefits of the sound environmental decisions they make between now and 1 July. I have decided to oppose this legislation for those reasons. On Committee Stage, I will propose ways of improving the Bill. Perhaps the Minister will reflect on our suggestions, which reflect the genuine concerns of consumers, in advance of that debate. People are entitled to get the benefit of the sound environmental decisions they make when purchasing cars.

Acting Chairman (Deputy Kathleen Lynch)

Deputy Ciarán Lynch has 30 minutes.

Deputy Ciarán Lynch

I think it was George Bernard Shaw who said "If I had more time, I would have written a shorter letter". Unfortunately, there is an exception to every rule. In the case of this legislation, 30 minutes is not sufficient to cover every issue I would like to raise.

Is this Bill a revenue-driven exercise, if Deputies will pardon the pun, or is it an environment-driven exercise? As Deputy Hogan said, the measures being proposed have revenue and environmental implications. Everyone concedes that the proposal to base car tax and vehicle registration tax on CO2 emissions, rather than on an outmoded and arbitrary distinction between various engine sizes, has some merit. There is overwhelming support for this aspect of the Bill throughout the House. However, the Minister's proposal does not comprise a total review of motor taxation. The manner in which the Bill is being presented to the House creates a number of anomalies and inequities. The Labour Party will seek to rectify such problems by proposing amendments on Committee and Report Stages.

In the time available to me, I will refer to the serious concerns that have been expressed about the ineffectiveness of the proposed changes in reducing carbon emissions. These proposals will potentially have an unfair effect on families. There is a danger that this legislation will penalise the owners of large family cars who are not in a position to buy a new car, which would be unfair. Those who own larger cars with cleaner emissions will have to pay more tax than those who own smaller cars which are less environmentally friendly.

In recent years, there has been a clear need for a new policy direction on energy efficiency in the transport sector. This Bill sets out the direction in which we will go in the future. People need incentives to make better environmental choices. It is disappointing that transport energy efficiency increased by less than 1% between 1995 and 2005, particularly as the programme for Government set a target of making energy savings of 20% by 2020. I hope this Bill will indicate how we can improve our performance in this area. The Minister needs to clarify his emission rate targets. How will this legislation help us to meet the 2020 target set in the programme for Government? Will performance indicators be set or is it just something that is in the moment?

The AA made a number of substantial points in the submission it made to the Minister on this Bill. It argued that there is too much taxation on the purchase and ownership of cars, rather than taxation on usage. The restricted availability of flexifuel in many parts of the country is one of the difficulties faced by those who own environmentally friendly cars. I understand that just one petrol station in Cork sells flexifuel. If we are to consider tax incentives, we should focus on this area. The AA submission also states:

In essence it (the Minister's proposal) falls into the ‘Catch 22' of eco-taxes, whereby the more effective a measure is at its stated purpose of improving the environment the less revenue it raises. Faced with this choice between the two, both Departments have chosen to preserve the revenue.

That is the point I made at the outset. This Bill must be driven by environmental considerations, rather than being a revenue-driven exercise. If it is revenue driven, it will completely undermine what it is supposed to do.

The AA suggests that any attempt to call vehicle registration tax an environmental tax represents a misunderstanding of the original reasons for its introduction. According to the AA:

VRT came about because Vehicle Excise Duty was cynically renamed to avoid Ireland's Single European Market commitments. It would be still more cynical to evade the concerns of the consumer and the European Commission by renaming the tax again as a ‘Carbon Levy' or some similar piece of sophistry.

In our consideration of this Bill, we need to examine what vehicle registration tax is. It should work as a once-off addition to the purchase price, based on the engine size. It was introduced for certain reasons and is being retained for those reasons. This legislation does not change the rationale for its initial introduction.

The Labour Party will seek to rectify the anomalies in the Motor Vehicle (Duties and Licences) Bill 2008, as it is being considered today, during the debate on Committee and Report Stages. This legislation provides for changes in the rates of car tax and introduces a system whereby the amount of tax payable on a car will be linked to its emissions. Those are the two key points underpinning the Bill. Several aspects of the legislation are poorly thought-out and will create a number of anomalies. For example, motorists who currently drive cars with low emissions will not benefit from these measures. Similarly, motorists who buy used cars with low emissions, rather than new cars, will not benefit from these proposals. Since the introduction of the national car test, the average car is well in excess of a decade on the road. Therefore, the current and future owners of cars which were registered for the first time in recent weeks will not benefit from the proposed changes for the next ten or 12 years. If someone who cannot afford to buy a new car decides to buy a second-hand eco-friendly car in 12 months, 18 months, two years, six years or eight years' time, he or she will never benefit from this legislation. The extent to which such people will be penalised will depend on their incomes and the value of the cars they can afford.

The lack of retrospection in the Bill is a serious concern. The benefits of lower taxes will not apply to those who currently own low emission cars. If one buys a low emission car in July, one will be liable to pay €100 tax annually for the lifetime of the car. However, if a person purchases the same car before July, given dealers have the same cars in their forecourts now that they will have in July, he or she will be subject to a different tariff system, which the Labour Party believes is iniquitous and unfair. He or she will never benefit from this taxation system proposed in the legislation. In general, second-hand cars, regardless of how low are their emissions, will be taxed at higher rates into the foreseeable future and, therefore, people on lower incomes who buy such cars will never benefit.

There are further implications. Second-hand cars sourced in the Republic of Ireland will be taxed at the old rate while second-hand cars sourced in the North or abroad will be taxed at the new lower rates. Second-hand car dealers must be seriously asking themselves about their future. If I were a car dealer along the Border, I know where I would relocate in the next six months and where I would source cars from for the foreseeable future. The imported car will be liable for the lower rate of car tax compared with an identical model bought here, which means the new system will penalise the owners of used low emission cars, who acted responsibly in the first place, by making it difficult for them to sell their car on the second-hand market as a private citizen or to a dealer.

While I wholeheartedly agree with the principle underpinning these changes, it is clear they have been rushed and not thought out. It is imperative and necessary that the Minister re-examines the Bill to iron out these difficulties. The problem with taxing cars on the basis of CO2 emissions is they are a moving target. According to the Department of Finance's briefing notes to the Minister for the Environment, Heritage and Local Government, almost 65% of all cars sold in 2005 produced between 146g and 190g of CO2 per kilometre. Almost 14% produced more than 190g, which is in the high pollution category, and only 3.85% were in the low engined category, producing less than 125 g.

Flexi-fuel cars such as the Minister's or dual energy system cars, which the taxpayer pays for, account for 5% of the national fleet and because this is such an insignificant number, the anomalies that exist could be ironed out and resolved. The broader difficulty is this percentage will change significantly in years to come. It is predicted that by the end of the decade at least 60% of cars on our roads will come under this new taxation measure. Industry analysts predict CO2 emissions will reduce further, which means the revenue the Minister perceives will derive from this measure will fall over that period.

There are two significant aspects to this. The first is the impact this will have on local government because the tax take in this regard will reduce. The motor industry will respond and predictions relating to diesel vehicles over the next few years are that the levels of emissions will be so much smaller that the tax on large engined cars will reduce. Jaguar is launching a diesel model shortly, which will have a lower CO2 emissions rate than the Fiat 500, which was launched recently and which has an engine size one quarter the size of the Jaguar. If Jaguar can manufacture such an engine, every other manufacturer will match it, which will result in a significant depreciation in tax revenue, creating further difficulties.

Second, those who wish to buy the largest gas guzzler they can get their hands on will receive a windfall because between now and July no matter how large engined a car they buy, they will not be penalised even though they know this legislation is coming down the line. Anyone who bought a large engined car prior to the announcement of these changes should not be penalised for the decisions they made blindly but the notion that somebody can buy such a car now and not be penalised for doing so is a major anomaly and it undermines the intent of the legislation.

I refer to the 5% of motorists who bought ecofriendly cars with the greatest motivation. They did so for the right reason. Unfortunately, the Bill has more stick than carrot for them. They did something out of positive motivation, yet they will never benefit from the new taxation system. If they sell the car to a dealer, the return will be poor or should they wish to sell it privately, they will not benefit. Last autumn, the Minister set his own example by purchasing a hybrid car. It is unfortunate that more of his ministerial colleagues did not follow his lead. I noticed a number of large gas guzzling 2008 cars walking out of the Leinster House complex last night. It would be interesting to audit them to ascertain their emission levels. While the Minister has taken a lead on this, what differentiates him from other motorists who drive hybrid and ecofriendly cars is they have paid for them out of their own pockets and they will continue to pay for the anomalies in this legislation out of their own pockets for the next ten to 12 years.

The Labour Party will table amendments. Deputy Hogan referred to the kilometre evaluation system, which is of particular relevance to diesel cars. The deletion of the words "on or after 1 July 2008" on page 3 and "on or after 1 July 2008" on page 9 would rectify the anomalies to which I referred because those references will penalise the 5% of motorists who did the right thing and bought environmentally friendly cars in recent years. Massive changes are not required in this because 5% is a not a large number. All that would be required is to ensure local motor tax offices have a procedure in place so that when these motorists renew their motor taxation, they will be subject to the new rates and not the higher rates in place when they purchased their cars. Less than 5% of motorists are affected by this anomaly, which is a small number, and this can be sorted out.

The Minister also referred to the difficulties in providing a fairer system in his contribution. One clear response to this is the categories for grading cars from 1 July will not change and, therefore, I am not sure what the Minister means by his reference to a fair system. The specifications, the printing of the manuals and the documentation which accompanies the brochures will not change after 1 July. This information is set out in the catalogue of every car purchased, so there is no difficulty in that respect.

The second-hand car market reveals an anomaly in that cars imported from Japan will not qualify under the Bill. Cars coming off the Toyota assembly line in Tokyo may be destined for different markets but they are manufactured under the same process. It is ridiculous that two cars which are made side by side will not qualify equally under the same criteria. The Minister should re-examine this area with a view to bringing clarity because it reveals an absence in the Bill as drafted. I am sure he did not intend this anomaly.

Since the introduction of the NCT and alongside the improvement in road quality, this country's motoring culture has completely changed in terms of the lifespan of modern cars. I refer to a parliamentary question I put to the Minister for Finance last year. Some 1.5 million people in this country earn less than €38,000 per year, the equivalent of the wage increase the Taoiseach proposed to give himself. On that modest wage, it is difficult to purchase a new car on an annual or even a biannual basis. Most people in that earning category also face high mortgage repayments. After the family home, a new car is the most expensive purchase made in the majority of people's lifetimes. Environmentally friendly cars bought before 1 July will never be an attractive purchase for people in this wage category. The Minister is preventing people who cannot afford a new car from using financial incentives to do the right thing.

Can the Minister indicate the options he considered? I understand three options were available in terms of changing the system. The first involved the entire fleet but significant difficulties would have arisen if the changes were made on that basis from 1 January because those who bought cars prior to the introduction of the legislation would have been penalised. The second option was to cherrypick cars that would qualify, while the third option was the cut-off date. Why is the Minister so adamant on the cut-off date despite failing to consider further options that would improve his proposals? If he had introduced flexibility to the area, he would have resolved the difficulties I describe.

Deputy Hogan referred to the benefit-in-kind scheme. Prior to the introduction of the Bill, a friend of mine who works in the sales industry noted that sales people have an incentive to drive as far as possible in order to clock up miles and minimise their benefit-in-kind payments. We should introduce a taxation system which reduces emissions levels. At present, unnecessary journeys are being taken by sales people at the end of each month because their clocks are not in line with their benefit-in-kind calculations. Deputy Hogan can attest to this practice.

Deputy Phil Hogan

Deputy Dooley often did it.

Deputy Ciarán Lynch

As those who work in the sales industry tend to drive company cars, mileage and depreciation is not an issue for them. The Minister must address this issue in the context of the Bill.

If the Bill is intended as a means to incentivise the Irish driving public to make environmentally friendly choices, the Labour Party welcomes it. However, it has revenue implications for every household in the country. At present, the tax on a 1.6 litre car ranges between €350 and €450 per annum. The new system allows for significant reductions on that amount on cars with reduced emission levels. That is a substantial sum of money for any household earning €38,000. Legislation such as this is often drawn up by people who do not pay for the cars they drive or the fuel they put in their engines. They are not necessarily aware of what the rest of the driving public has to endure on a daily basis. Ireland is one of the most expensive countries in Europe to purchase a car because of VRT. For many years, people have purchased cars outside the State in order to avoid VRT. The Bill offers further incentives for purchasing second-hand cars outside the State, with implications for new and, in particular, second-hand car sales.

I hope we will look back on this Bill as a milestone in the transformation of Irish driving culture rather than an opportunity missed because anomalies were not rectified. I suggest that the Minister address these anomalies.

Debate adjourned.

Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.