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Dáil Éireann díospóireacht -
Thursday, 27 Nov 2008

Vol. 669 No. 1

Motor Vehicle (Duties and Licences) (No. 2) Bill 2008: Second Stage.

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

The purpose of the 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 14 October 2008. The financial resolution and this Bill provide for increases in motor tax of 4% for cars below 2.5 litres, and CO2 bands A to D; and 5% for cars above the 2.5 litre threshold and CO2 bands E, F and G. Rates on goods and other vehicles and trade plates also increase by 4% with no increase for electric vehicles.

The increases in motor tax rates must be viewed against the background that motor tax increases since the year 2000, including the current increases, are below the inflation rate over the intervening eight year period. The new rates will apply to motor tax discs and trade licences taken out for periods beginning on or after 1 January 2009.

The Bill also contains a minor technical change by relating the definition of CO2 emissions directly to the definition in the Finance Acts where it is used for the purposes of the vehicle registration tax system. The Finance Bill, in turn, contains a technical amendment to the definition of CO2 emissions. The amendment in this Bill means that all the relevant definitions common to both motor tax and VRT, derive from one source and ensures uniformity in both tax systems.

The sole reason for increasing motor tax rates from 1 January 2009 is to raise funding for the local government fund. It is important to underline that motor taxation is different from other taxes. The proceeds from motor tax are not paid into the Exchequer but directly into the local government fund. This funding is ring-fenced entirely for local government and cannot be used by the Exchequer for any other purpose. The motor tax paid into the fund is supplemented on an annual basis with a financial contribution from central Government. The fund is used predominately to finance non-national roads and the general purpose needs of local authorities.

It is anticipated that the proposed increases in motor tax rates will raise some €40 million extra for the fund next year. The establishment of the local government fund, and its funding by motor tax receipts, has created an important link between the amount of tax paid by motorists and the visible and concrete service they get for that tax in terms of better roads.

In total, local authorities will spend some €11.7 billion on capital and current expenditure in 2009. Some €1.6 billion will be available for allocation via the local government fund for general purpose grants, allocated by my Department, and funding for regional and local roads, allocated by the Department of Transport.

General purpose grants are the contribution that my Department makes to local authorities to meet the gap between the cost to them of providing a reasonable level of day to day services and the income they obtain from other sources. Over €935 million in general purpose grants will be provided to local authorities from the local government fund in 2009. Up to €564.5 million has also been allocated to the Department of Transport from the local government fund for 2009 for regional and local roads. An additional amount of approximately €80 million will be allocated for specific local government purposes including the operation of water services, the administration of group water schemes and the vehicle registration unit.

While general purpose grants are important in assisting local authorities to balance their budgets, they comprise only about one fifth of the funding required by authorities to provide their day-to-day services. Local authorities receive income from a range of sources including rates, charges for goods and services, specific State grants and general purpose grants from the local government fund. It is a matter for each local authority to prioritise its spending, within the resources available to it, across the range of services it provides. Equally, local authorities must ensure full value for money for the resources invested, and seek the maximum efficiency across their operation. I am satisfied the general purpose allocations I have provided for 2009, together with the income available from other sources, will enable local authorities to provide an acceptable level of service to their customers. While I appreciate there will be calls around the country for additional funding for local authorities, the reality is that Ireland is caught up in the most severe global economic recession and there is an obligation on this Government to respond accordingly.

This Government will not go down the road of adopting soft options, quick fixes or political expediency in our response to the economic downturn. We have less money to meet public expenditure demands. We cannot borrow our way out of trouble or return to the days of punitive tax rates that stifled economic growth and resulted in high unemployment. This means the Government has to implement difficult decisions to ensure our economy can continue to grow in the future. We are conscious of the sacrifices this entails but it is in everyone's interest that we deal responsibly with the situation and safeguard this country's prospects.

Local government must also play its part in the difficult period ahead. With hard work and determination, we will get through these difficult times and onto a path to economic recovery and renewal. There are many initiatives in place to support efficiency and value for money in the local government sector, including the financial management systems, value for money auditing and expanding e-enablement. In addition, the new costing system that was rolled out in partnership with local authorities will provide local authorities with further information on the costs of individual services. I have also urged local authorities to continue to exercise restraint in setting increases in commercial rates and local charges. Every opportunity should be given to the business sector to remain competitive in these tough economic times because a sound business sector is vital for the communities that depend on it.

One of my key objectives in office is to see local government play a much stronger and more visible role in the life of the local community. I am currently finalising a White Paper on local government that will contain significant institutional reforms. Changes to the way local government operates must be accompanied by measures that provide a greater link between local revenue raising and local expenditure. This is key to introducing greater local responsibility and accountability in decision making. The Government has made a start in this regard in the budget decision to broaden the revenue base of local authorities through the introduction of a charge on non-principal private residences. This will be used to support the provision of local services. I intend to bring forward legislation to implement the proposed charge as soon as possible and to set out the detailed measures necessary to give effect to it.

I refer to the provisions of the Bill. The Bill consists of six sections with the new tax rates for all vehicles set out in the Schedule to the Bill. I would like to highlight what this increase means in real cash terms for private cars and goods vehicles, which make up over 91% of the national fleet. For private cars taxed on the basis of engine size the extra cost for most motorists will be between €7 and €13 a year, that is between 13 cent and 25 cent a week. This relates to over 50% of the national car fleet which is made up of cars under 1,400 cc. For the remainder of the car fleet up to two litres the annual increases will be from €14 to €24 and from two litres upwards an additional €30 to €75 per year.

In summary, the extra costs for 94% of the car fleet, that is, those under two litres, will be between 13 cent and 46 cent a week. For private cars on the new CO2 based system, bands A to D will see an annual increase of between €4 and €17, while for bands E, F and G the annual increases range from €30 to €100.

For goods vehicles the effect of the 4% increase will vary depending on the weight of the vehicle. However, I emphasise that some 87% of goods vehicles are at the lowest level of charge, meaning that they will pay an annual increase of €11, or 21 cent per week. A 4% increase is also proposed for trade licences, or trade plates, used by motor traders on vehicles temporarily in their possession, in lieu of taxing such vehicles. The increase for a pair of trade plates will be €12.

The new CO2 based tax system for new cars only came into force in July 2008. However, it is clear from early data that the system is having a significant impact on purchase decisions in the market. The trend following the first four months of operation is that just under half of the cars in the new system are in the second lowest B band category, with 29% in the C band. The three lowest bands A to C contain 85% of the CO2 car fleet. That is a major achievement. The industry has stated that indications are that the new system is working well from an environmental viewpoint, with an average reduction of 20 g in CO2 emissions per kilometre per vehicle since the system came into effect.

The CO2 car fleet now contains 45,520 cars. This corresponds to 2.36% of the entire car fleet and this will continue to grow as new cars replace older cars in the fleet. A key part of the new system was the provision of a mandatory labelling system for cars based on their CO2 emission levels. The new label system, introduced in co-operation with the Society of the Irish Motor Industry, includes consumer-friendly information on a car's CO2 emissions. The overall approach is intended to assist buyers in evaluating the environmental impacts of different cars, as well as providing guidance for them on purchase and running costs. The labelling system currently operates on a non-statutory basis and I intend to bring forward the necessary legislation shortly to put it on a statutory footing.

It is clear the new taxation system is bringing a focus to environmental performance of vehicles like never before. This is clearly seen in the way the industry has transformed the way it advertises new cars, with particular emphasis now being placed on the emission levels of cars.

Versions of CO2 based motor taxation systems have now been introduced in 14 EU member states. These policies are having a profound effect on how the car industry responds to the challenge of climate change across Europe. This will be further reinforced by the Commission's proposals to set limits on emissions, which Ireland strongly supports.

The initiative launched yesterday by my colleague, the Minister for Communications, Energy and Natural Resources for the mass deployment of electric vehicles in Ireland is a further step towards putting Ireland on a sustainable energy footing. The Government has now set a target of 10% of electric vehicles in the overall road transport fleet by 2020. The Minister for Communications, Energy and Natural Resources, Deputy Ryan, stated that this is an ambitious target given the early stage of technology development in this sector but it is important we send a strong signal that Ireland intends to be one of the early international movers in this area.

The strategy to achieve this aim will include a €1 million pilot project, managed by Sustainable Energy Ireland, for detailed research, development and demonstration of electric vehicles nationally. It also includes tax incentives for corporate bodies purchasing electric vehicles, with an option to write off 100% of the cost of purchase against corporation tax under the accelerated capital allowance scheme and is included in the Finance Bill. The strategy includes assistance for individuals purchasing electric vehicles, through the publication of a buyer's guide and a cost of ownership calculator by Sustainable Energy Ireland, and the establishment of a national task force to examine infrastructural options for national roll-out of electric vehicles, including street-charging.

In respect of motor tax, I have not increased the charge for electric cars in this Bill, maintaining the position I adopted last year. The move to transform the Irish car fleet to a more sustainable basis poses challenges for protecting local government funding. The introduction of emissions-based VRT and motor tax had a dual objective of encouraging a move to lower emission vehicles while protecting central and local government revenues. It is my intention to keep these dual objectives under review, in conjunction with the motor industry, in the light of experience of the new system.

This is a short Bill of only six sections. Its purpose is to give permanent legal standing to the increases in motor tax introduced by the financial resolution passed by Dáil Éireann on 14 October last. I commend the Bill to the House.

Debate adjourned.
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