Martin Ferris (Kerry North, Sinn Fein)
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Question 89: To ask the Minister for Finance if he will replace the system of vehicle registration tax with a system of car taxation based on pollution levels. [39115/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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VRT is a very important source of revenue for the Exchequer providing €1.15 billion or 2.9% of total net tax receipts for 2005. It is a valuable source of funds given this Government's strategy of reducing other taxes such as income tax and increasing the level of funding for vital public services such as health and education. Consequently, any changes to the current system would require very careful consideration.

The European Commission published a proposal for a directive in relation to car taxes in July 2005 which supports the gradual abolition of registration taxes which it believes is impacting adversely on the functioning of the internal market. However, the aim of the proposal is that such registration taxes would be replaced by higher circulation taxes (such as Ireland's Motor Tax) which would have a CO2 element or possibly increased excise taxes on fuel. VRT would be required to have a CO2 basis in the period up to its abolition. Since discussions at Council level commenced in October 2005, we have pointed out that we regard VRT as a national tax that falls within the national competence, a position shared by several other Member States. 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, as I indicated earlier, 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.

However, we accept that the Commission in its proposal is attempting to design a structure which ideally would go someway towards incentivising behaviour that reduces carbon emissions. On the domestic front, we will be reviewing policy options that may have the capacity to reduce emissions from cars but on a fiscal-neutral basis, which is in keeping with the spirit of the Commission's proposal.