Enda Kenny (Mayo, Fine Gael) | Oireachtas source

The new rates will apply to motor tax discs and trade licences taken out from tonight for periods beginning on or after 1 January 2013.

The House will note that I have just referred to A bands in the plural. Deputies will be aware that, in budget 2012, my colleague, the Minister for Finance, announced a review of the carbon banding applying to vehicle registration tax, VRT, and motor tax with a view to having a revised taxation structure in place for this budget. The Government's twin priorities have been to ensure the continuation of the positive environmental impact on vehicle emissions and the protection of the tax base.

Under the new structure for both VRT and motor tax, the CO2 band A has been broken into four separate bands and the B band has been split into two. For motor tax only, a new zero band is also introduced for electric vehicles with a lower annual tax of €120 applying. The revised banding recognises that ever more fuel efficient cars are becoming available and allows for the differentiation of the environmental incentive in favour of the most environmentally friendly vehicles now and into the future. Indeed, the reduction in tax for electric vehicles recognises that there are no emissions at the point of use of these vehicles. These changes ensure a strong environmental incentive remains in place.

While the combined levels of increases in the lower CO2 bands in this budget and the last are higher than the rest of the fleet, the increases must be viewed against a structure that has left the bottom rates very low. The reality is that there has been a significant loss of motor tax income over the past number of years, as the number of vehicles taxed on the basis of CO2 emissions has increased by about 5% year on year. At the end of October, the CO2 fleet of nearly 429,000 cars comprised just under 23% of all cars on the road. Of these, over 385,000 are taxed at the three lowest bands. This year, for the first time, over half of all new cars purchased are in the A band, the lowest rate of tax. This erosion of the tax base presents a challenge on the taxation side of the budget and needs to be addressed.

While the move to lower emission cars is welcome from an environmental perspective, it represented an increasing loss of income to fund local services. Receipts have reduced from €1.06 billion in 2008 to €1.01 billion in 2011. It is estimated that income for this year would have been in the region of €954 million had no increases in rates taken place in the last budget, a further reduction of 5.5%.

This budget restructures the bands in such a way that there remains a positive incentive to purchase low CO2 cars in recognition of the need to maintain correct environmental signals in the transport sector as an important part of our national effort to reduce emissions and achieve our climate obligations. The restructuring also goes towards responding to the challenge of maintaining the motor tax base.

The A band is split into five bands corresponding to the four bands for VRT purposes, but with an additional zero emissions category to provide an additional incentive for electric cars.

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