VRT changes 'could encourage imports of large cars'

Ernst & Young's John Heffernan has said that the VRT changes announced in today's Budget will cause massive distortion in the new car market in the first six months of the year.

Mr Heffernan said: "For example, the VRT increase on a large 3-litre SUV with a retail price of €80k will be in the region €5,000.

"There is a strong incentive for motor dealers to promote the sale of large cars in the first half 2008."

In contrast, he said, some 2-litre diesels have exceptionally low emissions.

"A 2-litre diesel with a retail price of €50,000 could benefit from a VRT reduction of about €7,000 on July 1. Clearly any intending purchaser with an eye on a small car or on a very efficient diesel, will defer a purchase decision until July, or possibly will wait until 2009 to save one year’s depreciation.

"Interestingly, the new VRT system will apply to imports of second hand cars first registered in Ireland after July 1, 2008. No VRT applies to the import of classic cars (cars over 30 years old and presumably with exceptionally high CO2 emissions). It is not clear if such cars will continue to be exempt under the new system."

Mr Heffernan said the change in VRT is being applied to car capital allowances and leasing charges.

"However the Minister has not taken the opportunity to adjust the BIK on company cars to encourage provision of cars with lower CO2 emissions. BIK on cars was adjusted in this way in the UK some years ago."

He went on to say that Mr Cowen's most significant contribution to environmental issues in this Budget was his overhaul of the VRT system.

"While this Budget might have been 'greener' than any of his four previous Budgets, it did little to actively promote a sustainable energy future for Ireland.

"This is likely to result in strong demand for diesel cars. Currently diesel car sales in Ireland account for approximately 25% of the total market whereas the EU average is 75%.

"The aim of the VRT proposals is to help the Government achieve its target under the Kyoto agreement to limit greenhouse emissions while at the same time ensuring that the impact is tax neutral.”