THE GOVERNMENT’S car scrappage scheme may be judged a success in terms of generating much-needed tax revenue and supporting a business sector hit by a combination of recession and an ill-timed overhaul of the motor tax system.
It also made it more socially acceptable to buy a new car in the midst of recession. For most motorists, however, it had little relevance. Their primary concern is paying monthly bills for fuel, insurance, tax and maintenance, not purchasing a new car. Understandably, it also irked other struggling sectors which did not receive such high-profile State support.
Scrappage schemes are designed to encourage future potential new car buyers to purchase now. The hope is that the loss of these future sales will be countered by an overall economic recovery by the time the scheme ends. When it works, it is a smart way to bridge economic dips. The problem with this scheme is that it concludes with the economy still in the doldrums.
Claims that it wasted taxpayers’ money by discounting new car prices for affluent motorists are misplaced. It offered tax relief on Vehicle Registration Tax (VRT) on the sale of a new car – up to €1,500 last year and €1,250 this year – when a car 10 years or older was scrapped. While this reduced the tax income on individual deals, it generated greater total tax revenues from up to 30,000 new car sales through the scheme. Initial estimates from the Society of the Irish Motor Industry suggest the net tax income from VAT and VRT on these sales will be close to €100 million.
Of more pressing concern to the Government will be managing its desire to lower carbon emissions from the motoring fleet while protecting tax income. The changeover in July 2008 from a tax system based on engine size to one graded by a car’s emissions has radically altered buying behaviour, with 90.4 per cent of the new cars sold up to May this year qualifying for the two lowest tax bands. From an environmental point of view the change in tax policy has been a resounding success; in terms of tax revenue it has been a disaster. The National Recovery Plan committed to adjusting the motor tax bands by 2013. Given the pace of engine development in recent years that may well have to be brought forward.
For car dealers the success of the scheme is less than clear cut. It provided much needed cashflow for some but not every brand benefited to the same extent. Many firms also offered extra discounts on top of the Government’s tax relief that will be hard to roll back.