Inducing taxpayers into tax-avoidance schemes with expensive tax breaks is hardly a viable budget strategy. That is the view of the UK’s Office of Budget Responsibility, an independent body akin to our Fiscal Council.
They were commenting on the acceleration in the take-up of electric cars, now accounting for just over one in 10 new sales in Britain and headed for a market share of 60pc inside five years. There are two hits to the budget: the upfront tax breaks forego revenue in order to stimulate electric car purchases, enabling motorists to avoid fuel taxes thereafter.
A nice deal for the motorist and good news for the climate, but not sustainable for finance ministers. Motorists pay high taxes for a reason — roads cost a lot to build and more to maintain, and the revenue to meet these costs will evaporate. Gently at first but then rapidly, as the car fleet electrifies. Fleets of light vans are electrifying too, and the decline in tax receipts from road users is becoming visible in the revenue figures.
Subsidies to electric car take-up in Ireland have been tapered but are still higher than in the UK. If the principle is maintained that road users should meet the costs of a functioning road system, the current taxation arrangements are not viable.
Upfront subsidies will be phased out as manufacturers’ prices decline with increasing volume, but the main long-run cost to the state budget is the disappearing fuel taxes.
Electric cars are still expensive, but manufacturers expect them to be no pricier than petrol and diesel models within a few years. Even with subsidies withdrawn, the electric option will look attractive — and some form of purchase tax could be contemplated. But what is to replace the fuel duty, the main user-charge on motorists, and the principal source of ongoing revenue to pay the billions per annum needed for road upkeep?
There are four major reasons for discouraging private car ownership and use, through the tax system and otherwise.
The first two, carbon emissions and poor air quality, especially in built-up areas, are a consequence of running cars on petrol and diesel. There are two more which receive less airtime but whose social costs are comparable. These are traffic congestion caused by cars in motion at peak times, and the colossal waste of scarce road space taken up by stationary vehicles, both mainly urban problems.
Should it prove possible to decarbonise the electricity system and substitute electric traction for petrol and diesel, the first two problems would be taken care of, if not entirely then in substantial degree. It is government policy here to promote electric vehicles and the process is well under way.
At some point in the 2030s, all bar the heaviest road vehicles and a dwindling legacy stock of cars should have been converted to electricity. There are countries whose electricity systems are already close to emission-free, using a combination of hydro, wind and nuclear. It is our government policy to aim for the same outcome, relying on ambitious targets for renewables.
If cars are mainly electric a decade hence, and the electricity sector has greatly reduced its climate impact, there will be less concern about either carbon emissions or damage to air quality from private car use.
That still leaves two good reasons to discourage the private car.
Congestion at peak times imposes enormous costs. When you take out your car, especially for a city commute at a busy time, you bear the delay cost yourself but not the cost you impose on other road users. There is a case for congestion charging, even should cars become climate-friendly.
And if you park your car on a city street, and do not pay for the privilege, you are imposing an unremunerated cost on others, through occupying valuable urban space which has alternative uses.
Both of these points were made by the Dublin City Council chief executive Owen Keegan on Tuesday last, earning him an instant rebuke from Senator Michael McDowell. McDowell notes that Dublin City Council provides free parking for staff at their place of work. He neglects to point out that this perk is not chargeable to benefit-in-kind as are company cars, an overdue reform proposed but not pursued when he was tánaiste. He also forgot to mention Leinster House, where Dáil deputies and senators enjoy free parking for life — even after they have relinquished office. City council employees, poor devils, lose their free parking on retirement.
There are 168 hours in a week, and best estimates are that most cars in European cities are stationary for all but 25 or 30 of these hours. But where? If lodged in off-street parking spots, paid for or owned by the motorist, well and good — the costs are internalised. But in Dublin, an extraordinary number of residents (including those on narrow Victorian streets) avail of free or almost free parking for stationary vehicles.
An on-street parking permit is available in parking-meter zones for the princely sum of €50 per annum. A day’s parking for non-residents on the same streets costs around €3 per hour, say €30 a day or €150 a week if parked from 8am to 6pm every weekday. That equates, in a week, to the annual charge to residents.
In the city centre and the inner suburbs, the going rental for an off-street parking space pre-pandemic was around €3,000 per annum. Dishing out kerbside parking spaces for an annual €50 is an astonishing subsidy in a city where buses battle their way through city streets clogged, not just with traffic, but with a lane each side taken up by stationary cars.
A modern classic in urban economics is a book by Donald Shoup, an economics professor at the University of California, called The High Cost of Free Parking. First published in 2011, it has been reprinted in paperback to meet demand.
The people at the city council must have read Shoup’s book. So should defenders of the kerbside freeloading in the leafy suburbs.