Richard Bruton (Dublin North Central, Fine Gael)
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Question 84: To ask the Minister for Finance the Government's attitude to plans of the EU tax Commissioner to deal with vehicle registration tax. [26662/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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While The European Commission has published a proposal for a directive on car taxes, nothing has been decided at this stage. The Commission proposal has not yet been discussed by all member states although these discussions will commence shortly.

In essence, the Commission proposal supports the gradual abolition of registration taxes which it believes impact on the functioning of the Internal Market. However, the aim of the proposal is that such registration taxes would be replaced by circulation taxes which would have a CO2 element.

We are willing to enter into the debate with the European Commission and other member states of the EU about the merits or otherwise of this proposal. However, from our perspective, it must be said that VRT provides significant revenue to the Exchequer —€946 million last year — which is used to fund vital public services. The collection of this tax is also very cost efficient, with the large majority of transactions now being on-line. In addition, its existence, while obviously not popular, has not impacted negatively on car sales in the State. Latest data show a 12% increase in new registrations to the end of September compared with the same period last year and strong sales are expected next year.

We regard VRT as a national tax that falls within the national competence. The mix of taxes, their levels and rates are a matter for EU member states based on legitimate choices. As regards the balance of taxation, Ireland has prioritised tax reductions on income earned by employees in preference to other tax areas, and this policy has helped create record employment levels.

While we are open to considering environmentally based tax measures, we again see this as an area for member states to decide themselves. Notwithstanding this point, I accept that the Commission in its proposal is attempting to design a structure which ideally would go some way towards incentivising behaviour that reduces carbon emissions and as discussions commence, we will be interested in the further views of the Commission in this area in conjunction with the views of other member states.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister gave quite a clever answer. I must admire his capacity to go a little bit of the road with everyone.

Paul McGrath (Westmeath, Fine Gael)
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Unlike his usual stance.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I can be reasonable at an early stage in discussions.

Richard Bruton (Dublin North Central, Fine Gael)
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This tax adds 61% to the price of a car and a high cost to the price of commercial vehicles. The argument being put forward is that it is not the ownership but the use of vehicles that has damaging environmental effects. Will the Minister elaborate on his thinking on this tax measure? He has recited the argument for and against it. He thinks this tax is an easy way to gather revenue because the consumer is a soft target in the car market and as the market is booming he might as well roll in the money while he can. He is also saying there is merit in examining the possibility of putting in place a more sensible environmental structure.

Taking a long-term view, does he agree that it is time Ireland recognised that extremely high rates of VRT are out of line, that we need to reduce them over a long period to ensure such a change does not disrupt public finances and that we need to examine a more environmentally sound basis for raising tax from the motor sector? Does he agree it is time to consider such a policy in more open terms rather than trying to avoid being committed to either side of the debate?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I hate taking the long-term view of looking to the third tenure of this Administration in case it upsets the Deputy opposite. In this regard, I can look to the longer term.

Paul McGrath (Westmeath, Fine Gael)
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The Minister can dream on.

Dan Boyle (Cork South Central, Green Party)
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The year 2007 is not that far away.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Is the Deputy involved as well? I did not realise that.

Paul McGrath (Westmeath, Fine Gael)
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The Minister's party might be talking to his party yet. It should keep that door open.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The point to be made in this regard is that this proposal is at an early stage. The Commission has an idea and, as Deputy Bruton knows from his ministerial experience, many a proposal has been put forward by the Commission on which it was difficult to maintain a consensus when subjected to the white fires of domestic politics in the Council of Ministers. I could take the easy road and suggest that we will consider this positively on the basis that I know it is not imminent, but rather than taking both sides of the argument I make the point firmly that VRT is an important part of our tax system in terms of what it raises in revenue for the country. We must take that into account in terms of the mix of policies we have, including reducing taxes and keeping taxes on employment low, because that is a strategic view we have taken which has proved successful in terms of attracting foreign direct investment, generating economic activity and creating jobs for our people, which historically it could be argued was the major challenge facing successive Governments since we gained independence.

I listened this morning to some people who promote the interests of the car sector and they said that this proposal was imminent and asked why would we not begin to address this immediately. That is a narrow sectional view to take. I make the point clearly that this tax accounts for €1 billion in revenue, it has that benefit and it has not affected, as Deputy Bruton said, people being able to own their own cars which people need for transport purposes.

If the Commission has come forward with an idea that seems to be good and sends all the right signals, we should discuss it. However, I make it clear that if it is an attempt to harmonise taxes or bring the EU into an area of competence in regard to which we have carefully negotiated ourselves to a position where we retain our own competence, this is a fundamental issue. It is an issue I raised in regard to aviation fuel tax and one I will raise in regard to this and other areas where I consider a principle is being conceded which would have wider ramifications than simply the benign measure that has been suggested here.

Joan Burton (Dublin West, Labour)
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Has the Government carried out a study on what would constitute a more environmental approach? We see a great number of what can only be described as mini tanks driving around areas in Dublin 4 where the roads, or their surfaces at any rate, would be in a much better state than those of the farm roads in Laoighis-Offaly. Has the Government undertaken a study on how we might take a more environmentally sensitive approach to this issue?

Brian Cowen (Laois-Offaly, Fianna Fail)
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We also have a few of those vehicles in our part of the country. Now that we are operating in a higher energy environment, the question of energy efficiency, the use of alternative fuels and securing greater efficiencies is something countries must consider now, as was discussed with ECOFIN. At an informal ECOFIN meeting held by the UK Chancellor of the Exchequer, Gordon Brown, in Manchester a few weeks ago, this issue came up for considerable discussion because of the ramifications of higher oil prices for the future. There is also a responsibility on car manufacturers and others, as the Deputy said. This morning I heard people who defend the car industry suggest that the CO2 emissions from these newer vehicles are less than the level of emissions previously. They regard that as a plus.

From our point in regard to this measure, we will carefully consider its ambit and scope. I set out in my reply a number of important considerations from this country's point of view as we seek to examine what way we can move the issue forward with the Commission.

Dan Boyle (Cork South Central, Green Party)
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Thought should be given not only to reviewing VRT but to the wider reform of motor taxation. Despite the increase in figures the Minister cited, people should be encouraged to own cars, particularly because of the Government's policies in regard to public transport, but where the use of cars is avoidable, especially in urban areas where public transport should be available, that is where the focus of our taxation policy should be.

The Minister's earlier crack in regard to energy tax convinces me that he does not understand that tax measure. It is a tax per volume rather than an ad valorem tax. If the Minister did what the ERSI recommended and reduced VAT and excise duties, whenever an increase in inflation in fuel prices occurs, the tax would remain the same. One need only compare the idea of vehicle registration tax and annual registration tax to the approach in other jurisdictions where as much as possible the bias is placed on the usage of vehicles and not on engine capacity. It is placed more on the effect to which Deputy Burton referred, namely, the effect and weight of the vehicles as much as on access to public transport in communities. If that is not the approach taken, as the Minister said in his reply, vehicle registration tax only exists to give the impression that we are lowering other headline taxes such as corporation tax and personal income tax.

Brian Cowen (Laois-Offaly, Fianna Fail)
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It is a discretionary tax in that respect. We are all open to environmental initiatives. If someone can think up a way whereby €1 billion euro can be discarded, just like that, it would be interesting to know how the public services he or she wants can be maintained. We cannot have it every way. There are environmental initiatives to be looked at and we can look at this one. However, as Minister for Finance, I am entitled to make the point that there are revenue implications here which must be considered.