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fuel tax

Increase in electric car take-up 'could pose a substantial risk to stability of the State’s finances'

A schedule of declining supports to buy electric cars should be considered, states department review.

THE INCREASING TAKE-UP of electric cars in Ireland over the next decade “could pose a substantial risk to the stability of the State’s finances”, the government has been warned. 

The government’s spending review into the incentives offered to people to switch to electric cars (EV) states increased uptake will lead to significant declines in Exchequer revenues from motor and fuel taxation.

The review, carried out by the Department of Expenditure and Reform, states that these taxes “represent a significant proportion of total Irish Government revenues”.

It stated that carbon tax receipts in 2018 were approximately €431 million, while fuel excise receipts in 2017 were approximately €2 billion.

The growth projection of EVs will result in €1.5 billion less revenue from motor tax, VAT and fuel oil tax between now and 2030, reaching €500 million in annual losses by 2030, if the Climate Plan targets are reached.

‘Severity of revenue losses’

It warned that the government “must be aware of the severity of these revenue losses” if electric vehicle purchases grows to the levels set out in the Climate Action Plan. 

Environment Minister Richard Bruton committed to one million electric cars on Irish roads by 2030. 

The government’s spending review papers, which are published ahead of Budget day in October, state that balancing the achievement of the Climate Action Plan’s targets on EV deployment with maintaining revenues will require “careful consideration and alternative taxation models will need to be considered”.

The upfront costs of subsidising the adoption of electric vehicles “greatly outweigh the projected benefits”, states the report.

The review also raises question marks over the current level of supports offered to drivers who wish to switch to electric.

The department review notes that Ireland currently offers some of the most generous supports in the world for EV purchase, including a purchase grant, vehicle registration tax relief, a toll incentive, a charger installation grant and reduced motor tax rates.

In total, the average EV purchaser receives a direct subsidy from the State of between €10,141 and €13,616.

As well as this direct expenditure liability, the State’s finances are also impacted over time through reduced excise receipts, as excise is not currently levied on domestic electricity usage, notes the report. 

It suggests that if the current supports are continued, every 100,000 new EVs will cost the Exchequer between €1.14 billion and €1.36 billion.

Emission targets

While noting that EV deployment will assist Ireland in meeting its 10% minimum renewable energy target in the transport sector by 2020, and help Ireland to achieve
its 2030 climate and energy targets, it questions whether even the current incentives should be maintained. 

Even when accounting for the greenhouse gas emission and air quality benefits, the cost to the State of maintaining the current level of EV supports is very significant.

It also said the sustainability of the current vehicle taxation model and the sustainability of public finances must be considered.

The spending review also highlights that the SEAI grant and VRT costs for EVs in the first six months of the year have been greater than the entire 2018 spend, stating that demand for EVs has grown rapidly in 2019.

shutterstock_552655543 Shutterstock / Zapp2Photo Shutterstock / Zapp2Photo / Zapp2Photo

Project 2040 fund 

It projects that the €200 million in Project 2040 will soon run out if the uptake continues at this pace, and states maintaining the existing level of supports would be a “regressive choice”. 

While the current EV supports have proven effective at increasing EV take-up, at the current growth rates and absent reform, the €200 million committed to EV deployment in Project Ireland 2040 will be exhausted by 2021.
Maintaining the current level of supports, providing a very high level of support to a very few early adopters, would be a very regressive policy choice. It is worth asking whether this is the optimal use of the allocated Project Ireland 2040 funds in order to reach the target articulated in the Climate Action Plan.
When compared to the cost of reducing greenhouse gas emissions through other mechanisms, such as investment in energy efficiency which has the potential to have less adverse distributional impacts, the cost to the Exchequer of the current range of EV supports appears quite high in comparison.

Instead of recommending increased supports for drivers, it states that “a schedule of declining supports for EV take-up, which would end when the total cost of ownership gap between EVs and diesel and petrol cars is equalised, may provide a more sustainable pathway for government incentives moving forward, while providing certainty to vehicle purchasers, dealers and manufacturers”.

The review notes that the uptake in EVs is already having an impact on the Exchequer funding, stating that the cost revenue foregone to the end of 2018 has been estimated by the Department of Transport, Tourism and Sport at €5.74 million

The greatest barrier to people switching to an electric car is the cost, according to the department, noting incentives in other countries to encourage people to switch to electric, such as electric vehicles allowed access to the bus lanes in Norway, while in Italy a car scrappage scheme gives between €2,500 and €6,000 if you trade in your old fossil fueled car.

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