Budget 2021: fuel prices rise and high-emission cars hit

Major reform of motor tax and VRT regime designed to encourage sales of cleaner cars

An extra €1.51 for a tank of diesel and €1,000 on the price of the average new car are the major changes for motorists from Budget 2021.

From midnight, the increase in carbon tax by €7.50 per tonne will mean a €1.51 rise in the cost of a 60-litre fill of diesel and €1.30 for a similar amount of petrol.

Adopting several of the recommendations of the influential Tax Strategy Group's pre-budget review, Minister for Finance Paschal Donohoe has opted to adjust the current emissions-based tax system to allow for the new international testing regime that aims to offer more realistic emissions ratings for all cars.

On motor tax on new cars, Mr Donohoe said the number of Vehicle Registration Tax (VRT) bands will rise from 11 at present to 20, applying to all new car sales from January 1st. According to the Society of the Irish Motor Industry (SIMI), the changes will mean a €1,000 increase in the price of the average new car.


Whereas current VRT rates range from 14 per cent to 36 per cent, the new VRT table has a range from 7 per cent for cars with carbon emissions (CO2) up to 50g/km to 37 per cent on vehicles with emissions over 191g/km.

The Minister has also adjusted the NOx (Nitrogen Oxide) surcharge bands, a tax that applies to all new cars and used imports.

With the New European Driving Cycle (NEDC) system being replaced by a new system, known as WLTP (Worldwide Harmonised Light Vehicles Test Procedure], Mr Donohoe is also changing the annual motor tax regime.

Currently, cars first registered prior to July 2008 are rated by engine size, while those rated after then have been taxed based on NEDC emissions ratings. These cars will continue to be taxed based on these criteria.

However, from January 1st all new cars will be taxed based on their WLTP ratings. As with the VRT changes, there are more bands in the new regime, with the lowest annual motor tax rate of €120 only applying to zero-emissions cars, while a new €140 rate applies to vehicles with emissions of 1g/km to 50g/km.

In terms of grants for electric and hybrid vehicles, the current allowances will expire at the end of this year. However, Mr Donohoe said that changes to the VRT system should mean these vehicles will compensate for the difference.

According to Mr Donohoe: “The modified new structure of rates and bands for VRT and motor tax have been adjusted to take account of the fact that cars under the new test record higher CO2 emissions. We have strengthened the environmental rationale of the VRT regime to encourage motorists who are in the market for a new car to make greener choices.”

Fuel costs

While the AA's Conor Faughnan broadly welcomed the changes to the VRT system, he strongly criticised the rise in fuel prices.

"Hiking fuel costs [via carbon tax] accomplishes absolutely nothing for the environment and only serves to increase living costs for many people across Ireland who are reliant on their ordinary, modest car," he said.

“Many people in rural areas, for example, have no other way to get around and it’s increasing their living costs. It moves us no closer to meeting our climate change obligations.”

In terms of hybrids, while the current grants will end this year, in his budget speech Mr Donohoe said: “It should be noted that the changes to the VRT rates and bands compensates for the changes to these reliefs.”

According to Steve Tormey, chief executive of Toyota Ireland, the net result of the changes will see the VRT on its new Corolla Hybrid fall by €360 under the new regime. However, buyers will lose out on the €1,500 tax rebate on these cars.

For other car brands, the changes will mean significant tax increases on higher-emitting models, particularly some popular crossover SUVs.

At Volkswagen, for example, the prices for more traditional family hatchbacks like the Golf remain broadly the same – a Golf 2.0 diesel 115hp Life model will go up just €76 – but its best-selling Tiguan SUV models go up in price by an average of €3,000.

Brian Cooke, director-general of SIMI, said the changes will make the new car market "even more challenging for next year, reducing demand and slowing down the replacement of the oldest cars in the national fleet with newer lower-emitting cars, which in turn will make it more difficult to drive down emissions".

On electric vehicles, the €5,000 VRT relief for full-electric vehicles is being tapered for vehicles priced at over €40,000, so that no amount of relief is available for any all-electric cars with a value of over €50,000. However, the additional €5,000 SEAI grant is not due to expire until the end of next year.

Stephen Gleeson, managing director of Hyundai Ireland, said the exclusion of businesses from the current SEAI grants for purchasing EVs remains a ridiculous anomaly and is restricting sales to companies.

“Why would a company voluntarily pay €5,000 more for an EV than a private individual when the car will be worth the same in both cases when it is resold?” he said.

"This budget is another good example of the Greens wanting to be seen to make changes that matter without changing the things that actually do matter."

Michael McAleer

Michael McAleer

Michael McAleer is Motoring Editor, Innovation Editor and an Assistant Business Editor at The Irish Times