Revision of VRT system to take greater account of CO2 emission levels

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1 I note with interest from the document titled: 'Annex D - Public Consultation on options for revising the VRT system to take greater account of CO 2 emission '. That it is proposed to take vehicle CO 2 emissions into account when determining annual motor tax charges. This is indeed a welcome development. Modern engine technology has increasingly resulted in lower CO2 emissions for any given engine size. This is especially so for modern diesel engines. Some of the new compact diesel engines have emissions as low as 109g/km & lower. VRT is a regressive tax. If it did not exist there would be little motivation or rationale for it's introduction. It's a legacy tax from excise duty, which existed pre The Government of the day were unwilling to bite the bullet & phase out this tax. It is indeed unfortunate that the EU at the time didn't insist on it being phased out over a period of 3-5 years. With the low level of annual car sales in the early to mid 1990's this could have been relatively easily achieved. However with the huge growth in annual car sales since VRT revenues have risen to unprecedented, any prospect of phasing out at this stage would be more difficult to achieve. The public in general whilst not liking tax (no one does!), accept income tax. VAT, etc. VRT is a somewhat uniquely Irish anomaly with the exception of a few other European countries. It's the one tax everyone (especially the motorist) loves to "hate". Negative impacts of VRT are: Deprives the Irish motorist of the potential benefits of the single market. Irish car prices are substantially more costly than the European average. Motor importers bring lower specification cars onto the Irish market in order to keep the cost down. Lower specification includes omitting safety equipment such as additional airbags, and vehicle stability programmes. Less value for money. Incidence of used car imports (35,882 in 2005) thus depriving the established motor trade at home of potential additional business. However, given that we've got VRT at this point in time, despised as it may be, measures to encourage less polluting vehicle, & discourage more polluting

2 vehicles need to be examined. The main factors driving car purchase are: need & lifestyle. These two factors are separate, & but are not entirely unrelated. Need: At a basic level the purchase of any vehicle is driven by basic transport needs, ie: to get from A to B. After this requirements are the main deciding factor, family size, small run around, load carrying capability, etc. Lifestyle: With increasing of wealth, lifestyle is now a much greater influence on car purchase. Consequently vehicles such as SUV's, coupes, etc are now a feature on our roads. Wealthy individuals will always opt for luxury marques (BMW, Mercedes, etc.), which will always have bigger engines, with higher CO 2 emissions. Our road tax system, & VRT to a certain extent has always punitively taxed larger vehicles. It's no coincidence therefore that almost 75% of the national car fleet is 1600cc & under. In effect three quarters of the national (with the exception of older vehicles) fleet is under 170g/km (A - D bands with proposed labelling system) in terms of emissions. The challenge therefore is to encourage the purchase of more fuel-efficient vehicles in whatever category the buyer is opting for. So while luxury vehicles will always have higher emissions, buyers in that category need to be encouraged towards lower emission choices also as much as possible. The options currently proposed (Options 1 to 4) attempt to address the above issues to varying degrees. Option 1 This is just a further evolution of the existing arrangement, which strives to further encourage purchase of vehicles of under 1200c.c., & discourage those of above 2400c.c. This will have limited benefit, as vehicle choice below 1200c.c is rather limited. Vehicles in this range are very small, & will not meet the needs of a large portion of the motoring public. Above 2400c.c. higher spending individuals will be less influenced by the 5% increase in VRT, & will not necessarily opt for the next category down. The main shortfall of this option is that within each category, there's no CO 2 element. Buyers will not have incentives to opt for lower CO 2 vehicles apart from choosing a lower engine size.

3 Option 2 The disadvantage here are the anomalies which appeared between A1/B, & A2/B and A1/E & A2/E. Looking at the A2/B sector, almost all the cars in this sector are diesel which have engines which tend to be larger but have lower CO 2 emissions. Hence the reason why these vehicles fall into the 'B' emission band where most A1 vehicles are. However one could hardly justify having an Opel Corsa 1.2i with a VRT of 22.5% while its 1.7 diesel equivalent is in the 20%. Both fall within the same emission band, but due to engine size, the diesel is in the A2 band. Under the existing system, the 1.7 will have a VRT of 25%, while the 1.2 will have 22.5, just because the Corsa 1.7CTDi has a larger engine size. This anomaly arises due to the variation in CO 2 for given engine sizes. Ideally an approach which gives more regard to CO 2 than engine size would reduce the anomalies. Ultimately, a CO 2 approach only should be the desired outcome. The engine size approach is really legacy. If one were commencing from scratch today CO2 would be the starting point, not engine size. When a better understanding of the workings of CO 2 element is reached consideration needs to be given making CO 2 more predominant. Option 3 This is simpler & more straightforward than the previous option with the CO2 - c.c. matrix being less complex. The disadvantage of applying the same CO 2 range to all engine bands, is with the A3 category, the vast majority of vehicles available are above 190g/km. Conversely, the variety & choice below 190g/km & above 1900c.c. is relatively limited. Option 4 This is basically option 3 with two additional c.c. bands added. The advantages are vehicles under 1200c.c. will attract a lower VRT rate as low as 10% for CO 2 of less than 145g/km. With 1400c.c. & under benefiting from substantially reduced VRT rates (10% for <=1200c.c., & 15% for <= 1400c.c.) this will influence a much wider portion of the car buying public. The c.c. CO 2 matrix although complex relative to option3 provides the greatest link between VRT & CO 2. With the reduced VRT rate for 1200c.c. & 1400c.c. there's a wider choice of vehicles available to the discerning purchaser. This is the most attractive option.

4 1900 or 2000 Engine sizes range from under 1,000c.c. to as high as 6,000c.c. For the small/medium sector (2,000c.c. & under), the most common sizes are: 1,000c.c. 1,200c.c. 1,400c.c. 1,600c.c. & 2,000c.c. Over 2,000c.c. vehicles & engines are distinctly larger with 6 & 8 cylinder engines prevailing. Engines under 2,000c.c. are 4 cylinder only. 2,000c.c. is the 'natural' break point between small/medium, & larger cars. Historically for road tax 2,000c.c. has long being the point above much higher rates of road tax took effect. For VRT prior to 2003, the 1,900c.c. rate was in fact 2,000c.c. It was lowered to 1,900c.c. as a purely revenue raising move. It had no basis in environmental (CO 2, etc) reasoning. An example of the anomalous nature of this threshold is illustrated by taking an example: Make/Model VRT rate using Option 4. Toyota Avensis 1,595c.c. 172g/km petrol 25% Toyota Avensis 1,990c.c. 146g/km petrol 30% Ford Mondeo 1,795c.c. 182g/km petrol 25% Ford Mondeo 1,998c.c. 148g/km diesel 30% Peugeot 407 1,749c.c. 187g/km petrol 25% Peugeot 407 1,997c.c. 155g/km diesel 30% The diesel version of the Mondeo, 407 & Avensis are rated at 30% despite having lower CO 2 emissions. For the upper medium sector sized vehicle, a diesel offering with a lower CO2 is generally offered in the 1,901c.c. - 2,000c.c. range. The 1,901c.c. - 2,000c.c. range really belongs as part of the 1,401c.c. - 1,900c.c. rather than the 2,001c.c. - 2,400c.c. range. Conclusion Option 4 or 3 are the preferred options with option 4 having the clear lead on linking CO 2 to VRT. In the longer term the aim should be to move more towards a CO 2 based regime with engine size playing a diminishing role. The current 1,901c.c. threshold is more appropriately set at 2,000c.c. in order that purchasers of the upper medium vehicle size can avail of low CO2 diesel engines at favourable VRT rates.

5 Is the intention here to change vehicle purchasing behaviour, or just as another source of revenue? The Irish Revenue is notorious for using the motorist as a source of revenue. Whilst all governments do to a certain extent, with high VRT, & higher average annual road tax than elsewhere the Irish motorist is subject to much higher of taxation than elsewhere. Reluctance to 'risk' this revenue stream, & take an innovative approach, will inevitably minimise the potential impact of any CO2 initiative on the car buying publics behaviour when choosing vehicles. Arthur McGuinness Drogheda Co. Louth.