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Implications of Budget 2021 for Irish motor industry

Tax rises on fuel and on high-emission cars are part of a major overhaul of the tax regime for motorists introduced today in Budget 2021.

The Minister for Finance Paschal Donohoe has announced that carbon tax will be increased by €7.50 per tonne of carbon dioxide.

Mr Donohoe said that the charge will rise from €26 to €33.50, and will be applied to auto fuels from tonight and all other fuels from May 1 next.

He said that legislation will be provided in the Finance Bill to increase the tax every year by €7.50 up to 2029, and by €6.50 in 2030 to achieve €100 per tonne of carbon dioxide.

This means that from tomorrow (October 14) a €1.51 rise in the cost of a 60 litre fill of diesel and €1.30 for a similar amount of petrol.

The motor tax regime will also change. With the NEDC system being replaced by a new system, known as WLTP [Worldwide Harmonised Light Vehicles Test Procedure], Mr Donohoe plans to reform the annual motor tax regime.

Mr Donohoe said the number of vehicle registration tax (VRT) bands will rise from 11 to 20, applying to all new car sales from January 1, 2021. He has also adjusted the NOx surcharge bands, a tax that applies to all new cars and used imports.

Currently cars first registered pre 2008 are rated by engine size, while those rated after then have been taxed based on NEDC emissions ratings. A third table of taxes based on WLTP ratings will apply to all new cars – and used imports – first registered from January 1, 2021.

The Vehicle Registration Tax (VRT), which is to put people off buying large diesel cars and go green with electric vehicles, was also mentioned in the Minister’s Budget speech.

Mr Donohoe said that VRT reliefs for Plug-in Hybrid Electric Vehicles and hybrids will be allowed to expire and relief for Battery Electric Vehicles will be allowed “taper”.

Elsewhere, people working from home due to Covid-19 may claim tax deductions for the cost of their employment, including the cost of broadband, under changes to be made.

Minister for Public Expenditure and Reform Michael McGrath also announced today €500m in additional expenditure measures to support businesses and communities, in addition to the tax measures announced by the Minister for Finance.

A further commercial rates waiver is also confirmed for the final quarter at a cost of €300m.

Budget 2021 also provides funding for up to 620 new Garda recruits, bringing the force number to 14,500.

A Christmas bonus for most recipients of the Pandemic Unemployment Payment (PUP) has also been announced as part of Budget 2021. It will mean that anyone getting the payment for four months up to December will receive the bonus.