Move to electric cars could pose risk to exchequer – department

Move to electric cars could pose risk to exchequer – department

Money allocated to increasing the take-up of electric cars will run out by 2021 unless the Government reforms its plans to incentivise the purchase of these vehicles, the Department of Public Expenditure has warned.

In its spending review papers, the department also says that €1.5 billion in existing taxes – raised through motor tax, VAT and excise – will be lost due to the move to electric vehicles.

The annual losses will reach €500 million by 2030 and a balance needs to be struck between increasing the take-up of electric vehicles and maintaining tax revenues, the department says, adding that alternative methods of taxing motoring will need to be considered.

The move to electric “could pose a substantial risk to the stability of the State’s finances”, it warns.

The paper also questions the sustainability of existing grant schemes, saying Ireland has “some of the most generous supports in the world” for buying electric vehicles, including a purchase grant, vehicle registration tax relief, a toll incentive, a home charger installation grant and reduced motor tax rates.

“Expenditure on all of these schemes is rapidly accelerating and the pace of this acceleration is rising,” the review states.

It says a choice to maintain “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 also questions if such an approach is the correct way to use taxpayers’ money.

The Government’s recent Climate Action Plan set a target of 840,000 passenger electric vehicles on the road by 2030, surpassing a previous commitment made a year earlier to have 500,000 electric vehicles by 2030.

More than €11bn

The department warns that every 100,000 new electric vehicles on the road will cost “the exchequer between €1.14 billion and €1.36 billion”, pitching the cost of the Government’s target at more than €11 billion.

However, it cautions against such “strawman” figures because electric vehicles will also be sold on the second-hand market and existing subsidies are designed to expire.

“It does, however, provide some insight into the scale of the challenge,” the papers say.

The Project Ireland 2040 Plan, published early last year, committed €200 million to reaching the State’s electric vehicle targets, but the department warns that this will run out if the current levels of support are left in place.

“While the current electric vehicle supports have proven effective at increasing take-up, at the current growth rates and absent reform, the Project Ireland 2040 allocation will be exhausted by 2021,” it says.

Instead, it says a schedule of “declining support” for electric cars, ending when the price gap between them and petrol and diesel cars is closed, may be more sustainable.

Current benefits, the spending review papers say, “are also regressive in nature, in that they tend to benefit the wealthier in society”. Higher-income households have more money to invest in new, low-emission cars, it says.

“When compared to the cost of reducing greenhouse gas emissions through other mechanisms, the cost to the exchequer of the current range of electric vehicles supports appears quite high.”

A so-called “feebate” system, which punishes drivers of petrol and diesel by imposing significantly higher taxes while also incentivising lower-emission cars, is mentioned. It has been especially effective in Norway, where 46 per cent of all new cars sold last year were electric vehicles.

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