McCreevy backs British on VRT plan

FINANCE Minister Charlie McCreevy has backed a British veto on plans to abolish Vehicle Registration Tax on cars.

The proposal being drawn up by the European Commission would scrap VRT, which at present adds from 21% to 30% to the cost of cars in Ireland, and replace it with an annual road tax.

VRT brings in almost 900 million a year to the Irish Exchequer, which the Department of Finance says is equal to 2% on the standard rate of income tax and is money it could not do without.

Similar recent moves towards creating a single market, such as the harmonisation of taxes on diesel and unleaded petrol, have met with stiff opposition from member states.

However, Internal Commissioner Frits Bolkestein insists that countries have committed themselves to such a course of action under Article 93 of the Treaty. Harmonisation is therefore an obligation, not an option, according to Mr Bolkestein.

The new VRT proposals would allow Irish motorists to buy a car on the continent and bring it into the country without having to pay a second tax on it, as they do at present.

It is the latest plank in the Commission's plan to create a single European market for cars. The price of vehicles varies hugely from one country to another, partly because of the different wholesale prices charged by manufacturers and partly because of local taxes.

But Mr McCreevy and British Chancellor of the Exchequer Gordon Brown are both against giving the EU any say in taxes, claiming that tax is a sovereign matter for national governments.

Mr McCreevy's spokesperson said yesterday, "We would have grave problems with it because of sovereignty and the loss of tax. We share the British view in relation to the sovereignty issue."

The European Commission says Ireland need not suffer a drop in income as VRT would be abolished and replaced by an environment-friendly road tax, based on a car's carbon dioxide emissions of the car.

Ironically, the proposal is based on the system in Britain, which is the only EU country not to charge VRT but where road tax is based on CO2 emissions.

However, the two British commissioners, Chris Patten and Neil Kinnock, told fellow commissioners they were not in favour of the change and would block it at Commission level. As a result, announcement of the proposal has been put off.

When and if the commissioners agree to it, there will be consultations with consumers, the car industry and other interested groups before it is drawn up as a firm plan. It would then have to be adopted by the 15 member state governments unanimously before becoming law.

This is the latest in a series of European Commission proposals to free up the vehicle industry and create a single market. Last week they announced plans they say would save motorists 6,000 on the average family car and open the way for car supermarkets.

This week they put forward proposals to harmonise the tax levied on diesel and unleaded petrol.