Phil Hogan (Carlow-Kilkenny, Fine Gael)

I thank the Senators who contributed to the debate. While I recognise that any increase in taxes is always unpopular, it is an unavoidable fact that the new CO2-based system introduced in July 2008 by my predecessor has resulted over time in a decline in motor tax receipts. Instead of the switch being revenue neutral, which was advocated at the time, while also providing an environmental incentive towards more fuel-efficient cars, the structure of the tax is such that we will take in progressively less over the years. Without the budget increase, the completion of the switch to CO2 taxation in the next 15 years will have the effect of shrinking the tax base by 50%. That would cause a consequent knock-on effect on the provision of services by local authorities.

There is a serious challenge in the current circumstances and failure to rectify the problem of reducing income from motor tax would transfer the load elsewhere in the economy to income tax or reduced allocations. Further, it is clear that the rates for the lowest CO2 bands are well out of step with their older comparators in the cubic centimetre taxation system. It is necessary to take steps towards equalisation. In the current circumstances the equalisation must, unfortunately, be upwards. In taking this step, however, we have ensured to the greatest extent possible that the rates of tax for the majority of cars taxed on the basis of CO2 emissions remain lower than what would have been charged under the older system based on engine capacity. That is evidence of our strong desire to maintain an appropriate environmental incentive while starting to rectify the difficulties created by the tax structure which was put in place in July 2008. Any further changes to the private vehicle fleet will be considered in the context of the review of the carbon banding for vehicle registration tax, VRT, and motor tax. I expect the review to be completed by the middle of the year. In carrying out the review our priorities will be to ensure that the positive environmental impact of the existing basis of taxation will be carried through to the future while simultaneously ensuring the protection of the tax base. I assure Members that the Government will give continuing priority to the maintenance of a low carbon emission economy.

I wish to deal with issues raised by Senators in the course of the debate. Addressing the need to counteract climate change is a priority for the Government. I announced processes in this House some time ago which will lead in due course to a suite of measures on legislation to meet our national obligations, and our contribution to the global effort to reduce greenhouse gas emissions is paramount. The rates of motor tax provided for in the Bill are entirely compatible with the principles and commitments outlined previously.

Reference was made to electric cars. The move to electric cars is compatible with the plans to move to lower carbon electricity. With more electricity being delivered from low or zero carbon sources in future, this will mean progressively lower emissions both from electric cars and the sale of such cars through the motor trade sector.

I agree with Senator Quinn's point that we could do more in terms of the efficient collection of moneys regardless of the source in local government. I am examining ways in which we could achieve greater efficiency of collection across the board on local sources of income which are required and needed in the local government fund and in the local government sector generally for the provision of essential services.

A total of 33 submissions were received on the VRT, carbon banding and motor tax review from a mix of interested parties. They include the motor trade itself and other elements of the motoring industry such as those in the vintage trade to whom Senator Mullins referred. The same 7.5% increase will apply to them as to everyone else. They are not immune to increases in taxation either.

The Bill provides for a once-off transfer of €46.5 million to the Exchequer in 2012. If we wish to do it in future years it must be voted through again. The measure applies to 2012 only. It is not the case, as Senator Norris might have indicated, that €46.5 million will automatically be available again in 2013. Senators will understand that I cannot comment on what the Government will do in 2013. That is a matter for the Minister for Finance to decide in terms of the competing priorities. Members will accept that we are in difficult times and people recognise that.

Various Members suggested the abolition of motor tax and the introduction of a system of fuel charges. There are arguments for and against the proposal. However, in the context of the current high cost of fuel, it would not be the most appropriate time to do it. The competing demands are the elimination of evasion, a saving of Garda time and the necessary increase in the cost of fuel to compensate for the loss to the Exchequer. It is estimated that fuel would have to increase by at least 20 cent a litre over and above the changes in the budget to compensate for the abolition of motor tax. The potential impact on various categories of road users would have to be carefully evaluated, in particular on commercial users, in a difficult economic climate and on rural road users generally. A total of 13% of the national fleet comprises goods vehicles and these, together with public service vehicles and buses, are high users of fuel or high mileage vehicles which would have higher costs under a pay-as-you-drive system.

The potential impact on business competitiveness is also clear. A significant increase in fuel duty would lead to an increase in cross-Border fuel purchasing, further depressing the tax base and requiring compensatory adjustments to be made elsewhere. With such an increase, the potential for an increase in the level of fuel laundering is also clear.

I thank Senators for their contributions. This is a revenue-raising measure in order to deal with the deficit in the public finances that we must bridge. Regrettably, this must be done. It is a source of revenue that is essential to rebalance the system to ensure we protect the local government fund and the provision of local government services.