ECONOMIC REPORT BY COLM MCCARTHY

Colm McCarthy

Climate Action and the Taxation of Motoring in Ireland

Submission to the Tax Strategy Group on behalf of the Irish Car Carbon Reduction Alliance

Introduction and Summary

Recent reports of the Tax Strategy Group have considered the structure, as well as the rates,of taxes on motoring. This report argues that a radically different approach to raising revenue from road users is becoming inevitable. The amounts are substantial – taxes on acquisition of vehicles, annual taxes on ownership, and fuel taxes, with a small component of charges for actual use, add up to about€6 billion per annum. A rough estimate of the direct and indirect costs attributable to road users totals to the same order of magnitude: the total take from motoring, including currently unrecovered emission and congestion costs, is at the right level. But the structure is not coherent and is unsustainable.

The decarbonisation of the vehicle fleet will progressively undermine the revenue base for fuel taxes, currently the principal revenue raiser, and the Irish system of taxes on vehicle acquisition has perverse effects in a context where fleet conversion is public policy.

Chapter 1 outlines the structure of motoring taxes in European countries and notes the heavy reliance in Ireland on fuel taxes, and on the acquisition tax, Vehicle Registration Tax (VRT), which is discouraging the purchase of new cars. Most other European countries have substantial fuel taxes but only a few share Ireland’s reliance on upfront taxes on vehicle acquisition. Direct charging for the use of road transport infrastructure has become more widespread in Europe but is still responsible for only a modest portion of public revenue.  

The second chapter considers the Climate Action Plan released in July 2019 and the broader context in which policy on the taxation of transport must be enshrined. Irish emissions as measured are mainly outside the European Union’s Emission Trading System or ETS, to a greater degree than in other EU countries. This imposes a differential adjustment obligation, since non-ETS targets must be attained entirely through national policy measures. Ireland’s targets are affected greatly by the measurement system, which counts emissions from agriculture on a production basis. Most other emissions, for example fuel combustion in the road vehicle fleet, are counted on a consumption basis. This measurement issue is important since Ireland is a substantial net exporter of agricultural products.

Chapter 3 discusses the direct (construction, maintenance, and policing) costs of the road system and the indirect costs, principally carbon emissions, low-level non-carbon emissions and congestion externalities. It concludes that the non-carbon and congestion externalities are significant and are not recovered from motorists.

The following chapter assesses the Irish system of taxes and charges on road users. The principal conclusion is that, when non-carbon emissions, congestion, the current low levels of the carbon charge

and of direct user charges are taken into account, the total annual yield from all motoring taxes and charges is roughly in line with identifiable direct costs and the un-collected externality costs. However, the structure is not well aligned with the incentivisation of emission reduction and fleet replacement. There is an unintended incentive to encourage the importation of older, high-emission,vehicles from the United Kingdom, the only other European country with right-hand steering wheels. There is a resultant leakage of VAT revenue. As the fleet becomes electrified, and as electricity moves to zero- or low-carbon technologies, the current reliance on fuel taxes, over half of revenue from all sources, becomes problematic.    

Chapter 5 argues that the current structure of motoring taxes is not sustainable in the longer term, even though aggregate revenue does not appear to be excessive and there is a policy prerogative to protect revenue in current circumstances.  Ultimately there will need to be a system which collects attributable direct costs from road users while incentivizing the reduction of carbon and non-carbon emissions and congestion externalities.  

The final chapter considers the unrealistic timeline that exists for the adoption of electric passenger cars and the policy options during the transition to a new system, which should be based on electronic road pricing and congestion charging. Such a system has the incidental benefit that, through charging for road space, it would restore the competitive advantage of bus-based public transport which is suppressed in the current structure where road space is effectively free. During the transition, which could take a decade or more, the system of motoring taxes should seek to protect aggregate revenue while promoting fleet replacement.

The report concludes with a short appendix outlining the main components of an electronic road pricing system. The report’s principal recommendation is that the government should undertake a detailed study of the practicalities of introducing a comprehensive system of road-user charging in Ireland.  

(August 10,2020)

CLICK BELOW FOR FULL REPORT.

Visit sourceDownload PDF

NEWS & PRESS

ICCRA Press Release: Motor Dealers Welcome Omission of Car Ban from Climate Bill

Motor dealers across Ireland have welcomed the omission of the proposed ban on the sale of new petrol & diesel cars. 07th October 2020

ICCRA Press Release: Motor dealers slam Greens’ failure to engage on emission target flaws

The ICCRA is calling on the Green Party & the Govt. to respond to compelling evidence that Ireland will miss its emission targets for cars

Press Release: Motor Dealers Slam Budget 2021 As Anti Motorist, Anti Rural and Anti Climate

Official reaction to the budget 2021 announcement . 13th October 2020

Press Release: Motor Dealers Slam Budget 2021 As Anti Motorist, Anti Rural and Anti Climate

Official reaction to the budget 2021 announcement . 13th October 2020

ICCRA Press Release: MOTOR DEALERS SAY PROPOSED CAR BAN ILLEGAL

The ban was proposed based on flawed and incomplete data and would also have been illegal under EU law. 08th October 2020

ICCRA Press Release: Motor Dealers Welcome Omission of Car Ban from Climate Bill

Motor dealers across Ireland have welcomed the omission of the proposed ban on the sale of new petrol & diesel cars. 07th October 2020

NEWS & PRESS

ICCRA Press Release: Motor Dealers Welcome Omission of Car Ban from Climate Bill

Motor dealers across Ireland have welcomed the omission of the proposed ban on the sale of new petrol & diesel cars. 07th October 2020

ICCRA Press Release: Motor dealers slam Greens’ failure to engage on emission target flaws

The ICCRA is calling on the Green Party & the Govt. to respond to compelling evidence that Ireland will miss its emission targets for cars

Press Release: Motor Dealers Slam Budget 2021 As Anti Motorist, Anti Rural and Anti Climate

Official reaction to the budget 2021 announcement . 13th October 2020

Press Release: Motor Dealers Slam Budget 2021 As Anti Motorist, Anti Rural and Anti Climate

Official reaction to the budget 2021 announcement . 13th October 2020

ICCRA Press Release: MOTOR DEALERS SAY PROPOSED CAR BAN ILLEGAL

The ban was proposed based on flawed and incomplete data and would also have been illegal under EU law. 08th October 2020

ICCRA Press Release: Motor Dealers Welcome Omission of Car Ban from Climate Bill

Motor dealers across Ireland have welcomed the omission of the proposed ban on the sale of new petrol & diesel cars. 07th October 2020

NEWS & PRESS

ICCRA Press Release: Motor Dealers Welcome Omission of Car Ban from Climate Bill

Motor dealers across Ireland have welcomed the omission of the proposed ban on the sale of new petrol & diesel cars. 07th October 2020

ICCRA Press Release: Motor dealers slam Greens’ failure to engage on emission target flaws

The ICCRA is calling on the Green Party & the Govt. to respond to compelling evidence that Ireland will miss its emission targets for cars

Press Release: Motor Dealers Slam Budget 2021 As Anti Motorist, Anti Rural and Anti Climate

Official reaction to the budget 2021 announcement . 13th October 2020

Press Release: Motor Dealers Slam Budget 2021 As Anti Motorist, Anti Rural and Anti Climate

Official reaction to the budget 2021 announcement . 13th October 2020

ICCRA Press Release: MOTOR DEALERS SAY PROPOSED CAR BAN ILLEGAL

The ban was proposed based on flawed and incomplete data and would also have been illegal under EU law. 08th October 2020

ICCRA Press Release: Motor Dealers Welcome Omission of Car Ban from Climate Bill

Motor dealers across Ireland have welcomed the omission of the proposed ban on the sale of new petrol & diesel cars. 07th October 2020