OPINION: Tax breaks for electric vehicles

FINANCE Minister Paschal Donohue will have a lot of difficult decisions to make before announcing Budget 2020 in just under a month from now with the uncertainty surrounding Brexit his biggest concern and the greatest influence on its general thrust. Another conundrum he will have to deal with – although it will be a more long-term slow burner – will be incentivising the purchase of electric cars in order to help meet the aims of the Climate Action Plan, which will also inform a lot of decisions being made in the Budget.

That such incentives have to be offered now is a given, but in the medium term could – according to a review carried out by the Department of Expenditure and Reform – ‘pose a substantial risk to the stability of the State’s finances.’ This is because more electric cars on the road will lead to Exchequer revenues from motor and fuel taxation declining significantly over the next decade as Minister for the Environment Richard Bruton is targeting having one million EVs on our roads by 2030 at the expense of new petrol and diesel vehicles, sales of which will be phased out.

It will result in €1.5 billion less revenue from motor tax, VAT and fuel oil tax between now and 2030, reaching €500 million in annual losses by then if the electric vehicles target is reached. To compensate for this, it looks as if carbon taxes will have to be increased quite significantly in the coming years.

Then there are the costs of the incentives for people to switch to EVs. A difficult balancing act for Minister Donohue.