New cars sold from July will face registration taxes based on the carbon-dioxide they emit even though the Department of Finance warned less than a year ago that such a change would be "unwise".
Under plans approved by the Department of Finance but not to be announced until budget day, some small diesel cars will drop in price by 10 per cent, while some larger petrol models will rise by a similar amount.
Last night there was no doubt that the information was deliberately "leaked" by the department, normally tight-lipped about tax changes, to prepare public opinion for the budget day change.
In all, vehicle registration taxes (VRT) will fall on 53 per cent of new car sales and increase on the remaining 47 per cent. The total revenue from VRT, worth €1.3 billion to the Exchequer last year, will not rise.
Under the existing system, cars below 1,400cc in size face a 22.5 per cent levy, while those between 1,401 and 1,900cc attract a 25 per cent rate. Larger vehicles above 1901cc pay 30 per cent.
Under the new system, small cars emitting up to 120g of CO2 per kilometre will pay a 14 per cent VRT rate; those emitting up to 140g will pay 16 per cent; while a top rate of 36 per cent will apply to cars emitting more than 225g per kilometre.
The introduction of such a system was opposed by the Department of Finance last December. It said then: "The outcome of a VRT system based solely on CO2 emission levels is too difficult to predict or estimate. Given the yield from VRT at around €1.3 billion in 2006, a change in the VRT system should not put a significant proportion of this revenue yield at risk. Consequently, any change to the VRT system to link it more to CO2 emission levels should be done on a phased basis."
The new rules will see VRT fall on new diesel and hybrid cars, and most new smaller and medium models. It will increase on larger petrol and some diesel models, but that will not always be the case. For example, under the new system the VRT on a small Volkswagen Polo 1.4 GP Comf will increase by 1.5 per cent, while the VRT imposed on the executive-class Lexus IS 220D will fall by 8 per cent
Last night Government sources said the VRT package was finalised, and would not be changed.