Budget hits on the way…

VAT, Car tax and fuel taxes are all going up next week when the budget measures are properly announced.

It’s the budget of a thousand leaks. Over the last week or so I have had numerous phone calls from journalists and from sources each of whom had managed to obtain a nugget or two about government’s plans. It appears that this is a deliberate tactic on government’s part taking the advice that nowadays a well placed leak is the best way to announce anything.

I have no idea what the logic is supposed to be as it does not make bad news any more palatable. We always suspected that the motorist was due a hit but what we are hearing is very unwelcome indeed.

The annual rate of car tax is to increase. Worse though, the lower emission cars in band A and band B will face the highest increases. In part this is because 70% of new car sales are now in band A and band B reflecting both consumer choice and improvements in car design. Essentially all new cars are now so efficient that all would have been classified as ‘ultra low emission’ even five years ago.

With tax charged on CO2 since 2008 this is effectively eroding away the tax base. The AA foresaw this and warned the government about it in writing back in March of 2008 before the new system came in*. Nevertheless it is going to feel like the worst sort of bad faith for drivers who bought new cars in the last 3 years and made the choice to buy clean and green. It will affect new car sales and it will also make people less inclined to believe future promises in this area.

*Click here to read: AA Submission to Department of Finance on Car Tax March 2007

And the hits keep on coming. It has been a hideous year for drivers in terms of the cost of fuel. This time last year a litre of petrol cost 137.5, diesel 130.6. Those figures are now ten cents per litre higher for petrol and about 18 cents per litre higher for diesel. For a car doing 12,000 miles per year at 30 mpg average this means an extra €15 per month for petrol users and an extra €27 per month for diesel.

The government’s proposed 2 cent Vat increase (leaked so comprehensively that even the German parliament has been briefed on it) will mean an extra 2.4 cent per litre on top of existing high prices.

We are told that the Carbon Tax is also due to rise. That tax really is a con job. It has absolutely nothing to do with Carbon (you might as well call it a ‘world peace tax’ for all the effect its name has). It is just a tax on fuel dressed up as a gesture to the environment. We don’t know what the proposed increase is, but a 20% increase in Carbon Tax would add 1 cent to fuel costs.

In the context of high oil prices this is the last thing our economy needs. It will remove the advantage that we had over Northern Ireland and will cut off the cross border revenue that we were getting on fuel. It also adds to the cost of living and the cost of doing business in Ireland.

96% of our freight moves by road. Even for the most determined anti-motorist the reality is that upping the cost of fuel ups the cost of every good and service in our economy.

It does not even raise much money. There is evidence that total fuel sales are down this year in response to rising prices. That trend will be exacerbated and of course falling fuel sales reduces the tax take.

Also, and here’s a truism that seems as lost on our current government as it was on their predecessors, when you put up the cost of an essential item you do not magically increase the country’s wealth or its tax revenue. Every €10 put into a tank is €10 that cannot be spent into the local economy. Hence the VAT increase is likely to reduce sales and economic activity rather than raise extra money.

It is like a post card from the bad old days. The Irish Motorist has become the budget day ‘old reliable’ once again.