Motorists facing 5pc 'across the board' road tax hike
MOTORISTS will be hit with an increase in motor tax in next month's Budget -- but it is likely to be less than 5pc.
A review of the motor tax system will not be completed until next year. But the Irish Independent has learned that Finance Minister Michael Noonan will push through an 'across the board' increase in motor tax next month.
It will be the first hike in two years and will come as a major blow to the struggling car industry.
The hike will take in all cars, including all pre-2008 cars currently outside the emissions-based system where payment is based on engine size, and those post-2008 where the motor tax is calculated using different bands based on exhaust emissions.
Although the exact size of the increase has yet to be decided, it is understood it will not be higher than 5pc.
However, for owners of an pre-2008 family car with a 1.6 litre engine, this will mean an extra €25 in motor tax -- pushing the total annual payment close to €500.
Motor tax receipts have plummeted by more than €34m between 2009 and 2010.
And along with VAT and social welfare, the Government views motorists as a target for reducing our massive deficit.
Petrol and diesel prices will also rise in the Budget through an increase in carbon taxes, supposedly to reduce emissions and help curb climate change.
But for the first time, the controversial Vehicle Registration Tax (VRT) is to be linked to car emissions in the Budget.
In most cases, VRT is calculated as a percentage of a vehicle's open market selling price.
However, in some cases it is charged as a set fee.
The new linkage will mean that the cleaner a car engine is in terms of emissions, the less VRT will have to be paid.
The car industry has been devastated by the recession, with new sales dramatically down on boom years. The VRT changes may help to boost the industry.
The price of a litre of petrol is expected to rise by at least 2pc when the carbon tax is increased from €15 per tonne to €25.
The planned review of motor tax rates comes after the introduction of a system in January 2009 -- for new cars only -- which rewarded drivers of more fuel-efficient and less-polluting vehicles.
Under the new system, instead of taxing new cars based on engine size, as is the case for those bought before July 2008, they are now charged between €104 and €2,100 a year on the basis of how much carbon dioxide they emit.
But the changes, along with a sharp drop in car sales, have resulted in the Exchequer taking a €650m hit.
Figures from the Department of Finance show that in 2008, the State took in more than €1bn in VRT charged on new cars. This has fallen to €380m.
Motor tax is paid to local authorities and goes into the local government fund.
This money is used to help run essential services and pay for road improvements. Unless the shortfall is made up, householders can expect to see a cut in services.
Officials are considering introducing a new lower band to reward drivers of the most efficient cars, but a hike across all tax bands is also likely.
The Department of Finance has committed to reviewing and adjusting bands before 2013.
Government sources said last night that if the receipts continued as they had for the first eight months, then the State would be looking at another significant drop.
This is putting intense pressure on the Department of Finance to bring in a "quick fix" tax rather than waiting for the review of emission bands to be completed.
The Government is also very concerned at the high level of off-the-road declarations being made.
Motorists escaped paying €94m during the 15 months from May 2009 to July 2010 by claiming that their car was off the road.
A new system will involve car owners having to inform the authorities if they expect to have their car off the road for a certain period, rather than after the event when they go to tax them.