Phil Hogan (Carlow-Kilkenny, Fine Gael) | Oireachtas source

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

I am pleased to open the debate in the Dáil on the Motor Vehicles (Duties and Licences) Bill 2013. The primary 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 budget day, 5 December 2012. The new rates apply to motor tax discs and trade licences taken out from budget night for periods beginning on or after 1 January 2013. The Bill provides for the same increases in motor tax as contained in the financial resolution, namely, an increase of 7.5% applied across most categories of vehicle and to trade licences. The average increase for vehicles taxed on the basis of CO2 is 19.8%. It is anticipated that the proposed increases in motor tax rates will raise approximately €86.5 million extra in 2013.

Members will recall that in budget 2012, my colleague, the Minister for Finance, announced a review of the carbon banding applying to vehicle registration tax and motor tax, with a view to having a revised taxation structure in place for the 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 motor tax structure, the A band is split into four bands that correspond with the restructuring carried out by the Minister for Finance for VRT purposes: 1-80g/km, 81-100g/km, 101-110g/km and 111-120g/km. There is also an additional zero emissions motor tax category to provide an additional incentive for electric cars. Band B has been split into two 10g bands.

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. The reduction in tax for electric vehicles recognises that there are no emissions at the point of use of these vehicles. The changes ensure a strong environmental incentive remains in place for purchasers of new cars to buy the clean option, and for the motor trade to place the cleanest options on the market in this country. The restructuring also responds to the challenge of maintaining the motor tax base because, while the move to lower emissions cars is welcome from an environmental perspective, it has represented an increasing loss of income to the local government fund for the funding of local services.

Since the introduction of the CO2-based system in 2008, the number of vehicles taxed on the basis of CO2 has increased by approximately 5% year on year. At the end of January 2013, the CO2 fleet contained nearly 448,000 cars comprising 24% of all cars on the road.

Of these, over 403,000 are taxed at the three lowest bands. In 2012, for the first time, over half of all new cars purchases were in the A band, with the lowest rate of tax.

As the number of vehicles based on CO₂has increased, with their attendant low rates of tax for the most energy efficient bands, receipts from motor tax have shown a parallel decline, from €1.06 billion in 2008 to €1.01 billion in 2011. Income would have been in the region of €954 million in 2012 if no increases in rates had taken place in the last budget. This would have been a reduction of 5.5% over the previous year. Once the older cars are all replaced by cars taxed on CO₂over the next 15 years or so, it is estimated that total motor tax from cars would fall by more than 40% if the taxation structures were to remain unchanged. In the current economic circumstances, and given the need to maintain a diversified and stable taxation system, this loss of income must be addressed with a gradual rebalancing of the rates paid on the old engine capacity system and those paid on the CO₂-based system.

In 2012, €46.5 million of motor tax income was transferred from the local government fund to the Exchequer. This year, an amount of up to €150 million will be similarly transferred. These are necessary measures towards the reduction of the national debt. The wording of an amendment to the Local Government Act 1998 to allow for the legislative underpinning of this year's transfer is close to finalisation and an additional section to the Bill will be introduced on Committee Stage. It is intended to word the amendment in such a way that the amount of the payment in late 2013 will have regard to the balance in the fund when all commitments provided for in the 2013 Revised Estimates for public services have been met. It should be noted that the projected income to the local government fund from motor tax in 2013 is in excess of €1.15 billion. Accordingly, the balance of funding available to local authorities will be the same as last year even if the maximum of €150 million is transferred.

I should stress that the Government is committed to supporting the local government fund and it will retain the bulk of the income from motor tax to be used to fund local services. Deputies will be aware of the significant role the local government fund has played in the financing of local government since it was established in 1999. The establishment of the fund and its funding from 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 investment in the road network.

In seeking to maximise income to the fund, I will be bringing forward a Bill shortly to close off the arrangement whereby a vehicle owner can declare retrospectively that his or her vehicle was off the road. Provision will be made for a declaration to be made in advance that a vehicle will be taken off the road. This change is designed to close off a loophole that disadvantages compliant taxpayers, and it is expected to bring in an additional €55 million in a full year.

Turning to the provisions of this Bill, it contains six sections and a Schedule. Sections 1 and 6 are procedural. Section 2 sets out that the rates apply to licences taken out for periods commencing on or after 1 January 2013. Section 3 provides for the Schedule to the Bill, with the new rates, to replace the existing Schedule in motor tax legislation. Section 4 provides for the increase to apply to vintage or veteran vehicles. Section 5 provides for the increases that apply to trade plates and replacement trade plates.

I would like to highlight to the House what the new tax rates mean in real cash terms in relation to 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 will be between €14 and €38 a year for vehicles up to 1700 cc. This cohort covers 69% of all cars taxed on engine capacity. For cars up to 2.5 litres, the annual increases will be from €44 to €75 and for those from 2.5 litres upwards, which account for 2.4% of the engine capacity fleet, there will be an additional €90 to €126 per year.

Rates for private vehicles taxed on the basis of CO₂are increased by between €10 and €92, with the level of increases graduating upwards from the most environmentally efficient A bands to the least environmentally friendly G band. The increase for the lowest band, the new band A1 below 80g/km, is the lowest of any increase in motor tax, and the rates of increase up to band A3 at 110g/km are below the average applied to the CO₂tax structure. This continues the message, in place since 2008, that the lower emissions vehicles will attract the lower rates of motor tax.

For goods vehicles, the effect of the 7.5% increase will vary depending on the size, in weight terms, of the vehicle. Some 90% of vehicles in this category are at the lowest level of charge, meaning that owners will pay €333, representing an annual increase of €23 or 44 cent per week.

The vehicles that make up the remainder of the national fleet consist mainly of agricultural tractors - 2.6%, motorcycles - 1.5%, vintage vehicles - 1.1% and small public service vehicles - 1%. All these vehicles have a separate tax class with a concessionary rate of tax on or under €102 after the increase of 7.5% has been applied.

A 7.5% increase is also proposed for trade licences, or trade plates as they are known. These are the registration plates used by motor traders on vehicles which are temporarily in their possession in lieu of taxing such vehicles. While there are strict restrictions on the use of the plates, they are transferable between vehicles. The increase for a pair of trade plates will be €48 per annum.

I also want to point out a couple of minor technical amendments from the financial resolution. One is in section 3 relating to the amendment to Part I of the Schedule to the Act of 1952. Prior to 1 January 2011, passenger cars were categorised as category A vehicles for VRT purposes. Section 102 of the Finance Act 2010 amended section 130 of the Finance Act 1992 to provide that a category A vehicle means a category M1 vehicle. While the financial resolution referred only to category M1 vehicles in the paragraphs setting out the new rates for private cars, some of the later paragraphs in the Schedule, which are not being amended in this Bill, refer to "a Category A vehicle or a Category M1 vehicle, as the case may be". Accordingly, for consistency throughout the Schedule, the amendments to subparagraph (d)(i) and (d)(ii) of paragraph 6 to the Schedule have been amended to reflect the latter wording. Also, and again this relates to section 3, rather than replace Part I of the Schedule to the Act of 1952 in its entirety, as has been the practice arising from previous rate increases and carried through to the financial resolution, only those paragraphs that contain rate increases are amended. This keeps the Bill as concise as possible.

A further technical amendment on Committee Stage may be necessary to increase from €99 to €119 as the threshold below which tax is payable on an annual basis, and this is being considered in conjunction with the Attorney General's office. This provision applies to vehicles that are charged concessionary rates of tax, such as agricultural tractors, island vehicles, small public service vehicles, school buses, etc. The intention would be to maintain the status quofor vehicles in this category.

This is a short Bill with the purpose of giving permanent legal standing to the increases in motor tax introduced by the financial resolution passed by Dáil Éireann on 5 December 2012. I commend the Bill to the House.

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