Hildegarde Naughton (Galway West, Fine Gael) | Oireachtas source

Motor tax receipts in 2021 were €908 million. Motor tax receipts accrue to the Exchequer. Changes to motor tax rates, including the potential abolition of motor tax, require primary legislation. These changes are made at budget time and are given permanent effect as part of the finance Bill.

A number of issues need to be considered in any proposal to abolish motor tax. The driver and computer services division of my Department is responsible for the maintenance of the national vehicle and driver file, NVDF, the central vehicle database, as well as supporting systems in local motor tax offices. The annual cost of running the NVDF is currently €22.9 million. However, the NVDF also supports road traffic enforcement, vehicle testing and the road transport operator licensing system and there would be a continuing requirement for it to remain in operation. Abolishing motor tax would require a legal framework to be put in place to ensure regular notification of vehicle and driver details to the NVDF, and compliance with that framework, to maintain an up-to-date vehicle database. Abolition of motor tax would result in savings on the paper cost of discs, and on printing and postage, as well as some savings on staff costs. However, it is estimated that would amount to total savings of just under €4 million in the Department.

The Department of Housing, Heritage and Local Government publishes the amalgamated audited annual financial statement for all the local authorities on an annual basis. The most recently published statement is for 2019 and gives the total cost of running the local authority motor tax service at €29.41 million for the year. Total savings, therefore, would be in the order of €33.5 million for the Department and local motor offices combined.

Motor tax rates are not a contributor to the recent increases in the cost of living. The last general increases in motor tax, affecting all vehicle categories, took effect from 1 January 2013. There were significant reductions in motor tax for goods vehicles in budget 2016, which took effect from 1 January 2016, with the top rate of tax being reduced from €5,195 to €900 annually. There were also some increases to rates from 1 January 2021 for some private vehicles based on carbon dioxide emissions and registered between 2008 and 2020. The rates applied only to the higher emitting bands C to G with rates increasing by between €10 and €50 annually. These changes applied to some 187,000 cars or approximately 8.5% of the total car fleet.

Of those affected, 120,000 owners saw their annual tax increase by €10 with the upper increase of €50 applying to 7,000 vehicles. Motor tax is payable for three, six or 12 months. Any proposal to abolish motor tax would also need to consider the position of vehicles under current taxation at the time of abolition. It is likely that the owners of such vehicles would look for refunds of the proportion of motor tax paid for the time remaining on the disc. This would add significantly to the first-year cost of abolition as 2.9 million vehicles are under current taxation at any given time.

Another aspect to be factored in are the provisions of the Eurovignette directive, which provides a legal framework for charging heavy goods vehicles for the use of certain roads. While the directive largely concentrates on the provision of mechanisms for infrastructure charging, it also sets minimum rates for vehicle taxes applied by member states to heavy goods vehicles. The minimum rate for the heaviest band is €929. Since the reduction in motor tax from January 2016 to a top rate of €900, Ireland has been in technical breach of the directive.

Last but not least, motor tax is an important environmental policy lever. Motor tax based on CO2 emissions is on a graduated banding structure differentiating in favour of the most environmentally-friendly vehicles. Abolishing motor tax would reduce the incentive for owners to move to less polluting vehicles, potentially impacting the transport emissions target for 2030 set out in the Climate Action Plan 2021. In addition, the Commission on Taxation and Welfare may have considered this area as part of its deliberations on how the taxation system can be used to help Ireland move to a low-carbon economy. Any proposals to review or change motor tax should also be mindful of the commission's recommendations once published.

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