Has the motor trade been sidelined in tax debate?
Budget 2021: The influential Tax Strategy Group explicitly rejected industry lobbying in its recent budget recommendations
Minister for Finance Paschal Donohoe is expected to take his lead for motoring issues from the Tax Strategy Group proposals. Photograph: Dara Mac Dónaill / The Irish Times
For decades now, the Irish motor trade has been banging one consistent drum. Reduce the cost of Vehicle Registration Tax (VRT). Originally, that was called for on the basis of fair-play. Our cousins in the UK and Europe didn’t, for the most part, have to pay punitive taxes when buying a new car, so why did we? The EU even once upon a time weighed in on the subject, saying that VRT was likely not sustainable.
More recently, the argument has - unsurprisingly - taken an environmental twist. Reduce VRT and make new cars cheaper, came the message from the Society of the Irish Motor Industry (SIMI) and more people will be able to buy new cars. New cars are, on the whole, cleaner than old cars so there will be an environmental benefit. With the likelihood of new and higher vehicle taxes coming in tandem with a switch from the old way of measuring fuel consumption and emissions (NEDC) to a new, more accurate, way (WLTP) the argument was becoming a potentially existential one.
Two weeks ago, though, the Tax Strategy Group - a coming together of some of the most senior civil servants - said that the motor trade was wrong. Lower VRT and faster fleet replacement didn’t bring with it environmental benefits. Indeed, the prevailing wisdom in officialdom now seems to be that VRT has been under-charged in recent years, and so we can all expect to see more expensive new cars following the upcoming Budget.
A combination of that, the Covid crisis, and the continuing rumblings of Brexit, have left the Irish motor trade feeling somewhat out on a limb. Brian Cooke, secretary general of SIMI maintains that the arguments and submissions put forward are still valid, no matter what the Tax Strategy Group might say.
“I do think they’re still valid, particularly in relation to renewing the fleet being the key to reducing emissions” Cooke told The Irish Times. “We have really ambitious projections about electric vehicles coming in, but to achieve that the cornerstone is a healthy new car market. After all, the people who are most likely to buy an electric car are those who have equity in their current car, say a two-to-three year old car, and can trade in.”
According to Cooke, those trade-ins have a rolling beneficial effect down through the entire car market, not just the market for brand-new cars. “Our numbers are right. A new car that is sold today is going to be something like 40 per cent lower in CO2 than the average car on the road. So someone comes in and trades their three-year old car for a new car, maybe an electric one. That’s just the first step. Someone else who’s in a seven-year old car can then trade up to that three-year old car, which lowers their emissions. Someone else again in the ten-year old car can trade up to the seven-year old one and so on.
“So that new car itself starts to churn throughout the entire vehicle market, and the danger is that if we ramp up the taxes on combustion cars too high, too soon then we break that cycle. We’ve seen that since the last time new car sales collapsed, in 2009 and 2010, it took almost seven years for the market to recover, and that’s the worst fear of the Irish motor industry.”
The independent data on this issue is cloudy at best. A report by the OECD found that under-taxing of cars and drivers actually triggers unpleasant effects on the environment, “pushing up carbon emissions, traffic congestion and air pollution.” That’s an older report, though. A more recent study, carried out by the International Council for Clean Transport (one of the groups that helped unearth the emissions cheating scandal that is Dieselgate) said: “Vehicle replacement, retrofit, and re-power programs can have an immediate and positive environmental impact because they reduce emissions from older, gross emitting, and inefficient vehicles in the fleet within a short period of time.”
Which sounds good. However, the report goes on to state that: “The largest emission reductions are achieved when the replacement vehicles are significantly cleaner than those they replace. For the benefits to be realised, policymakers must ensure that replacement vehicles have much lower pollutant emissions for the full range of operating conditions encountered by the vehicle during its useful life.” That has not necessarily been happening.
Compare the Irish sales charts form 2016 with those of 2020. While it’s true that the car market has been sequentially and significantly changed by both Brexit and Covid, one thing is abundantly clear - give Irish drivers the chance, and they will buy bigger, heavier cars. In 2016 in the top ten best-sellers’ list, there were only three crossovers or SUVs; four hatchbacks; two superminis; and one family saloon. By contrast, in 2020, there are five SUVs or crossovers; four hatchbacks; and a single, solitary supermini. Although their engine technology may be superior to that of older models, the inescapable fact is that larger, taller, heavier SUVS are simply less efficient, and more polluting, which rather wipes out the gains that may be found from trading up from an older car.
Indeed, the International Energy Agency last year published research that shows that an SUV will use around 25 per cent more energy than a lower-slung body shape with the same engine. That profligacy means that the growth of SUVs has wiped out, and then some, advances made in fuel efficiency since 2010. The IEA estimates that improvements in engine design and aerodynamics have saved around 2-million barrels per day of oil consumption. The rise of the SUV, it estimates, has cost 3.3-million barrels per day in the same time period.
Are electric cars clean?
Simply switching to electric power for cars isn’t necessarily the easy way out of this, either. While the consumer-facing difficulties of high pricing and sparse charging facilities are well known, this week Polestar - Volvo’s spinoff electric car maker - shared data that will make unpleasant reading for many. Calling for more transparency on a car’s environmental impact, Polestar demonstrated that because electric cars use more CO2 to be built than a conventional car, they need to be driven for high mileages to, effectively, put them in ‘carbon credit’ against a petrol or diesel model. Indeed, you’d need to drive for around 50,000km before the total emissions of a combustion-engined car outweigh the total emissions for an electric model. “Car manufacturers have not been clear in the past with consumers on the environmental impact of their products,” says Thomas Ingenlath, Polestar’s chief executive. “That’s not good enough. We need to be honest, even if it makes for uncomfortable reading.”
“Private transport is hugely important from an emissions point of view, and we need to reduce our emissions” said Brian Cooke. “But we can’t do that on our own. We need better public transport, we need perhaps more people working from home, but we also need to get the message across that changes that are too big and too quick are harmful to the final goal. We need to go on this environmental journey, but we - the motor industry, politicians, officials - all need to go on it together.”