Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

Many of the concerns expressed by the Chairman are motor tax issues rather than VRT issues. Motor tax is a matter for the Department of the Environment, Community and Local Government. The changes made by the Minister to the schedule of motor tax have helped to redress some of the Chairman's concerns. Obviously, there is still a distance to go. The significant changes made to the VRT regime in 2008 were driven by the Green Party Ministers, John Gormley and Eamon Ryan, in the Government of the time. They were generally the subject of a great deal of approval at that time. The intention of the scheme was to set very low rates of VRT, and consequently tax, on environmentally friendly vehicles. The transfer took place. I always believe tax breaks are good if one knows what are one's intended consequences. A tax break which changes either economic or social behaviour in an intended direction is a justified tax break. This is what was done. Between 80% and 85% of the fleet now comprises new-model environmentally friendly motor cars. Those who are holding out by continuing to have environmentally unfriendly cars are paying the higher rates. The tax break is no longer necessary.

I will set out the position in which the Exchequer has found itself in this context in these more stringent times. The yield from VRT and motor tax was €1.4 billion before the changes took place in 2008. That dropped to €400 million in the past three years. Now that the tax break has achieved its purpose, I have to examine the reduction from €1.4 billion to €400 million in the context of the position we are in. Obviously, some rebalancing in the opposite direction is now required. I will explain where the figure of €50 million came from. After the custom and practice changed in the way I have described, the vast bulk of cars were in the lowest band. We increased the yield by putting in more bands and thereby bringing some cars into a slightly higher band. The overall figure of €50 million was achieved by means of a general readjustment across the bands and slight changes in the rates. I cannot point to a single cause. The yield was achieved on foot of a general rebalancing. I understand what Deputies are saying. Everything I did was done after consultation with the trade. We gave an indication of the new VRT rates to the trade at the end of August so that companies would know what the rates would be when they were placing their new orders for cars. They advertised those rates in their trade magazines. There was no big surprise about it. They should not have been surprised by our intention to take more revenue from motor tax.

The companies expressed major concerns about car sales in 2013 to me and to my officials. One company had conducted a survey which indicated that people were conscious of the fact that other people are superstitious about the number 13. Its research work had shown that the sale of cars in 2013 would drop by 20%. Nobody likes to admit that they get upset when they see four magpies or a black cat, or that they do not like to walk under a ladder. Those who told the researchers they would not buy a car in 2013 explained that while they would have no problem with such a car and are not superstitious, they know there are many superstitious people out there and are worried that such people will not buy second-hand cars with "13" plates when the time comes for them to change their cars. That was what came out of the research. The trade asked us to consider providing for two registration periods each year, as is done in the UK, in order to try to remediate that. We have done that. We have got away from "13" plates by providing for "131" plates in the first half of the year and "132" plates in the second half of the year.

The trade's argument was not entirely based on the projected reduction in sales in 2013. It also pointed to the cash flow and staffing problems caused by such a high proportion of their sales taking place in the first couple of months of the year. Up to now, the companies have had to gear up with additional staff and salespersons early in the year, only to have to make them redundant as the year goes by. They try to pick them up again at the start of the following year. They argued that if there were two peaks in sales, they would be able to work with a lower number of expert staff over the 12-month period as a whole and would be able to incentivise those workers by making them permanent. We followed their advice. I do not know how the year will work out, but I have noted that a 20% year-on-year reduction in new car sales was recorded in January. Having said that, the numbers in the first three weeks of last year were extraordinary because people had pre-bought to avoid the VAT increase. Many cars were ordered between the budget of early December 2011 and Christmas of that year. They were delivered in January 2012. The point of sale was recorded as having taken place before the introduction of the 23% VAT rate. The figures began to fall away after that artificial boost.

There has been a 20% reduction in January but February is down only 8%. We will see how the year goes on and whether sales peak mid summer. I suspect people are saying they want to change their cars in 2013 but if they wait until the second half of the year the number plates will show the cars are six months newer than if they bought in the first half of the year and when exchanging them again they will get the benefit. It is difficult to project these things but I hope it will flatten out and that car sales will improve. This was done in full consultation with the trade and the measures taken were not a random idea that came into my head or the head of the Minister for the Environment, Community and Local Government. We are responding to requests made by the industry and we hope they work out.