John Gormley (Dublin South East, Green Party)

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.

See this speech in context