The switch to electric motoring will cost the exchequer at least €2.5 billion in lost tax revenue a year by 2030, according to the Irish Fiscal Advisory Council (IFAC).
Members of the budgetary watchdog appeared before the Oireachtas Committee on Budgetary Oversight on Wednesday to discuss the impact of the climate change transition on Government revenue.
“The main impact on Government revenue is due to the electrification of Ireland’s stock of vehicles,” IFAC chair Michael McMahon said in his opening address to the committee.
The reductions in Government revenue build steadily out to 2030, reaching almost 1 per cent of national income, “or €2.5 billion in today’s money,” he said.
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The fall in revenue is mainly driven by loss of excise duties, VAT, motor tax and vehicle registration tax (VRT).
“These reflect the move from using diesel and petrol to electricity, which is less heavily taxed. Both motor tax and VRT receipts would fall, as electric vehicles are less heavily taxed than petrol or diesel vehicles,” he said. The Government’s Climate Action Plan target is to have 840,000 electric vehicles on the road by 2030.
Prof McMahon said the predicted falls in revenue could be offset by making changes to the tax system – “changes which could further help achieve climate targets”.
He noted that the 2023 Tax Strategy Group Papers discussed charging drivers for road use by distance, congestion charges and/or by weight.
Some economists advocate moving to a system of road pricing – instead of using duty on petrol and diesel as a proxy for kilometres driven – with drivers given electronic number plates, which would signal to electronic gantries, not unlike how the M50 toll in Dublin currently works.
The installation of a State-wide system of such gantries is likely to be complex and costly, however. In the interim, governments appear to be favouring congestion charges.
In his address, Prof McMahon noted the switch to road use charges “would not necessarily involve an increase in the average tax burden faced by households and business”.
“This would merely replace one declining revenue stream with a new revenue stream – although there may be important distributional implications, which would warrant further analysis,” he said.
Watchdog members noted that modelling the public expenditure implications of climate change is more challenging than the revenue side.
“The highest level of outlays will be late in this decade (2027-2030). Public spending of between 0.7 per cent and 1.2 per cent of national income, or €2.6 and €4.4 billion, would be required at that time,” Prof McMahon said.
He told the committee the council would like to see more realistic budgeting on the part of the Government for these future costs.
“Taking actions now, taking them in a planned way ... then we would avoid the cost of noncompliance while providing policy certainty to households and businesses,” he said.
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