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Explainer: How will motorists be affected by today's Budget announcements?

A major overhaul of the VRT system was announced in today’s Budget.

MOTORISTS ARE GETTING to grips this evening with a range of green-tinged measures announced by the government today as part of Budget 2021.

But what exactly has been announced and what will the impact be on your wallet?

The first (and most simple-to-grasp) change announced was an increase in the carbon tax.

From tonight, the tax on petrol and diesel will increase to €7.50, from €26 to €33.50 per tonne of CO2.

Estimates suggest this will add about 2.5c per litre of petrol or diesel. 

New legislation will also be introduced in the Finance Bill to increase the tax each year by €7.50 up to 2029 and by €6.50 in 2030 – to bring it up to €100 per tonne of CO2

This is ahead of the €80 per tonne of carbon target set out in the 2019 national Climate Action Plan.

The latest hike will apply to other fuels, like home heating oil, from 1 May 2021.

Speaking on RTÉ News after the announcement, Conor Faughnan, director of consumer affairs at AA Ireland, said, “We’re very disappointed with the fuel price increase.

“It’s not much… but it’s just a kick at the motorists and all it does is raise tax revenue. And it treats people — particularly in rural areas — as if they’re the source of the problem.”

Motor tax

Alongside the carbon tax increase, a couple of important reforms to the existing motor and Vehicle Registration Tax systems were also announced today.

For context, it’s important to understand that from January 2021, a new emissions testing system — dubbed the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) — will be implemented across the State.

Leaving that aside for a second, Ireland currently has two separate motor tax categories.

About 500,000 cars in the State that were registered before 2008 are taxed based on engine size while nearly 1.6 million cars registered after 2008 are taxed based on their CO2 emissions.

That’s not going to change after today’s Budget announcement.

In fact, the government announced no changes to motor tax for pre-2008 cars.

Only the most polluting cars in the post-2008 regime will be taxed more than they were after today’s Budget.

This means that motorists with cars registered after 2008 that have a CO2 emissions rating of higher than 141g per kilometre will be taxed €400 instead of €390.

Meanwhile, a third motor tax category was introduced in today’s Budget to take the new WLTP into account.

From 1 January, new cars will be taxed in accordance with their emissions ratings under this new system.

This new motor tax category is designed to encourage people to buy cleaner, more efficient cars, meaning, for example, that vehicles with an emissions rating of 0g per kilometre will be taxed €120 per annum.

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At the opposite end of the spectrum, drivers of gas-guzzlers with an emissions rating of between 201 and 225 grams per kilometre will be charged €1,200.

A new €140 rate applies to vehicles with emissions of 1g per kilometre to 50g per kilometre under the WLTP.

New rate bands

Changes were also announced today to the Vehicle Registration Tax (VRT) system, including the creation of nine new rate bands.

This will mean that cleaner vehicles like plug-in hybrids and electric cars that emit up to 50g of per kilometre will be charged at 7% VRT.

Cars with a 191g per kilometre emissions rating face the hardest VRT hit with 37% VRT.

Car dealers have reacted angrily to the changes.

The Society of the Irish Motor Industry has claimed that the changes will add €1,000 on average to the price of a new car.

Meanwhile, the Irish Car Carbon Reduction Alliance (ICCRA), which represents the majority of new car dealers said the hikes were “disproportionate”.

“Penalising motorists for driving conventional cars is not going to lead to an increase in electric vehicles,” said ICCRA spokesperson Denis Murphy.

“Rather than incentivising the wide-scale adaption of newer, more carbon-efficient cars, people are going to hold onto their current car for longer, resulting in hundreds of thousands of older less carbon-efficient models remaining on Irish roads for years to come.”

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