Fergus O'Dowd (Louth, Fine Gael) | Oireachtas source

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 applied in respect of motor tax paid after budget night for periods beginning on or after 1 January 2013. The Bill confirms the increases in motor tax contained in the financial resolution, namely, an increase of 7.5% applied across most categories of vehicle, and to trade licences, in particular in relation to the engine capacity of pre-2008 cars and commercial vehicles. The average increase for vehicles taxed on the basis of CO2, namely, cars manufactured from 2008 onwards, is 19.8%. These increases will raise some ¤86.5 million extra in 2013.

In budget 2012, 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 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 motor tax structure, the A band is now split into four bands which correspond with the restructuring carried out by the Minister for Finance for VRT purposes. There is also an additional zero emissions motor tax category to provide an additional incentive for electric vehicles. 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 continuing differentiation of the environmental incentive in favour of the most environmentally friendly vehicles. The reduction in tax for electric vehicles recognises there are no emissions at the point of use of these vehicles.

These 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.

The restructuring also responds to the challenge of maintaining the motor tax base because, while the move to lower emission 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 about 5% year-on-year. The CO2 fleet is now just one quarter of all cars on the road, and 90% of these are taxed at the three lowest bands. In 2012, for the first time, over half of all new car purchases were at the lowest rate of tax. As the number of vehicles based on CO2 has 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 about ¤950 million in 2012, if no increases in rates had taken place in the budget.

Once the older cars are all replaced by cars taxed on CO2 over 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 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. This is more than the increase expected from the tax changes, but is a necessary measure towards the reduction of the national debt. The payment, which will not be made until late 2013, will have regard to the balance in the fund when all commitments to local authorities have been met. The projected income from motor tax in 2013 is in excess of ¤1.1 billion, and accordingly the balance of funding available to local authorities will be some ¤960 million, even if the full amount were to be transferred.

I confirm the Government remains committed to supporting the Local Government Fund which will retain the bulk of the income from motor tax to be used to fund local services.

The Bill contains six sections and a Schedule. Sections 1 and 8 are procedural. Section 2 sets out the rates that will apply to licences taken out for periods commencing on or after 1 January 2013. Section 3 is a technical amendment to raise the annual tax threshold above which owners of certain categories of vehicles can obtain a half-year or quarterly disc. Section 4 sets out the new motor tax rates for most vehicles. Section 5 provides for the increase to apply to vintage or veteran vehicles. Section 6 provides for the increases that apply to trade plates and replacement trade plates. Section 7 provides for the transfer from the Local Government Fund to the Exchequer. The amendment limits the transfer to a maximum of ¤150 million and is confined to 2013 only.

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.