New car prices will jump €1,300 – with electric vehicles up €4,100 – under budget proposals

The price of the average new car will rise by €1,294 – while all-electric cars like the Volkswagen ID.3 Family will jump by about €4,100 – under proposed Budget 2021 tax changes.

The Department of Finance’s Tax Strategy Group last week put forward changes to the Vehicle Registration Tax (VRT) system that would mean the tax rate on regular cars with emissions above 100g/km rise by between 2 and 5 per cent.

It also called for a drop in the cap for tax relief on electric cars to €40,000, with the current €5,000 tapering off from €30,000. It would end tax relief on the majority of the current best-selling electric cars on the Irish market.

According to figures seen by The Irish Times, the higher VRT rates will mean average price rises of €604 for cars with emissions between 101g/km and 105g/km, €1,141 for cars with emission of 126g/km to 130g/km, rising to €2,401 for new cars with emissions of 141g/km. The average price hikes increase significantly from there. Vehicles with emissions above 191g/km, which include several large SUVs, could have average prices rise by an estimated €8,765.

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The proposals have been strongly criticised by motor industry executives who say they run counter to efforts to lower transport emissions.

Kia Ireland chief executive Ronan Flood said the changes would only serve to deter motorists from changing to new lower emission or fully electric cars. “People will just keep their older car, which is more polluting,” said Flood.

Society of Irish Motor Industry (Simi) director general Brian Cooke said “all this does is reduce demand for new cars and it ignores the real issue out there, which is the 900,000 cars over 10 years old on the roads”.

On the lowering of the cut-off for tax relief on electric cars Mr Cooke said “there’s a lot of what you would call family cars in the €30,000 to €40,000 space and they’re actually going to go up in VRT if the measure is brought in.”

A spokesman for VW Group Ireland said: “As the market leader in battery electric vehicles [EVs], we believe these tax proposals would have a profoundly negative effect on the long term ambitions of the Climate Action Plan and Ireland’s wider sustainability goals.

“Under the Climate Action Plan, the Government wants 936,000 electric vehicles in Ireland by 2030. Of the 2.8 million vehicles currently on our roads, around 35,000 are electric.”

The VW spokesman said electric cars and plug-in hybrids are vital to achieving the plan’s goals and “the Government should be incentivising their uptake rather than discouraging it. For instance, the proposed changes to the VRT rebate would mean the price of the popular ID.3 Family increase by around €4,100. We need policies that accelerate the transition to cleaner mobility solutions rather than impede it.”

The Tax Strategy Group also proposes changes to the current system of Benefit in Kind (BIK) tax relief on electric vehicles.

At present employees driving electric cars are entitled to a zero per cent BIK rate. The exemption is due to expire at the end of 2022. From then on a new system that takes account of CO2 emissions and mileage is due to begin.

The Tax Strategy Group is proposing an extension of the zero per cent rate until 2025, though it will taper off every year. The threshold would drop from €50,000 down to €40,000 for the first year, €30,000 for the second year, €20,000 for the third year, before expiring in at end 2025. After that, a maximum rate of 19.75 per cent would apply to electric vehicles.

The Tax Strategy Group paper states: “Ireland has a generous BIK regime when compared with other jurisdictions in Europe. Effective BIK rates are higher in the UK, for example.”

While the proposal on electric vehicles have been welcomed by Simi, it has been strongly criticised by others. Stephen Gleeson, managing director of Hyundai Ireland said: “The dressing up of the suggestion that BIK on electric vehicles is ‘extended’ to 2025 as a positive is beyond laughable.”

Fleet sales demand

He said if an employee opted for an electric car today, they’d be paying BIK on the excess over €20,000 in its value in two years time.

“The last anti-EV measure pushed through was the removal of the SEAI grant for companies at the end of 2019. It was no surprise to us when our fleet sales [of electric vehicles] fell off a cliff at the end of 2019 when the Government brought in this daft rule. Fleet sales demand is a fraction of what they could be if we were not trying to persuade companies why they should pay €5,000 more for a car than anyone else.

“The justification at the time was that the BIK benefits were worth a lot for the companies. However, now the Government is considering killing that benefit and given the TSG [Tax Strategy Group] are dressing up the removal of any real benefit from BIK as an ‘extension’, I have no doubt they will still expect companies to pay an extra €5,000 more for the car than a private individual,” said Gleeson.

He also criticised the lack of engagement with Government. “We are one of the biggest sellers of EVs and cars in general and have never been asked for our opinion on any of the changes proposed by anyone in the TSG.

“Every year Irish car distributors must sign on for a certain volume of supply from the factories. Based on the anti-EV measures being proposed and the lack of understanding of our market place, it certainly makes sticking our collective necks out to commit to EV sales very difficult. Instead we are being forced to sit back and see how things work out in the market with the net effect of slowing EV rollout in Ireland.

“Remember we have no idea what the Government might do in the budget in October by which time we will have ordered cars for the first half of next year. This is a problem every year that could be solved at the stroke of a pen by announcing the VRT rates for the following year in July, rather than October”