Can tax changes really stop the car imports flood?

In spite of a generally improving economy in Ireland, sales of new cars continue to fall, or at least to flatline, in the face of every-growing numbers who choose to buy their cars both used and from the UK. The outwash of Brexit, and its depressive effect on the value of Sterling, continues to generate tempting value for Irish buyers shopping in the UK, and the total number of imported used cars looks set to exceed 100,000 this year. That is a number perilously close to the total sales of new cars.

Dealers and vehicle importers have been clamouring for the Government to do something to stem the tide, a tide that is undermining the used values of ‘native’ Irish cars, as well as its deleterious effect on the sales of new cars.

Taxation option

Is a tax on NOx the way forward? It’s certainly been floated, as part of a wide-ranging review of the vehicle taxation system being undertaken ahead of October’s Budget. NOx — nitrogen oxide — is the odourless gas at the heart of the recent diesel scandal. Emitted in large amounts by diesel cars (well, proportionally larger than a petrol, or a hybrid at any rate) it was car makers’ cheating over how those emissions were recorded and regulated that opened the public’s eyes to the potential downsides of diesel — namely localised air pollution, and the danger of causing increased rates of respiratory disease, to which NOx emission have been linked.

Given that the majority of cars being imported from the UK are diesel-powered, a tax on NOx emissions has the potential to be a ‘silver bullet’ to cure the Irish motor trade of its import ills.

Impact on the "native" car park

However, the effectiveness of the plan would depend hugely on the wording of the legislation. It will have to be very carefully designed if it’s not to cause ructions in the second hand market here, and the Government will have to carefully weigh up how it implements such a tax. Should it be retrospective, a stick with which to beat owners of older diesels into newer, less polluting cars? That would, arguably, be the right move from an air quality perspective, but would leave the tax open to criticism that it’s penalising those least able to pay it.

Taxing higher emissions of NOx would, potentially, put a crimp on imports of older diesels, but again the devil will be in the detail. Presumably the tax would have to be based on the officially recorded figures for each car, but prior to the introduction of the newer WLTP economy and emissions test, that figure — we now know — will the unrealistically low. The tax could then be seen as pointlessly penalising newer, more efficient cars which have been put through the new test, while leaving off older cars, simply because they had the luck to be tested under the older, less reliable, regime.

How to introduce charges

Then there is the issue of where and when the NOx tax will be paid. If it’s introduced as part of the VRT system, then it could be argued that the Government is putting up artificial trade barriers, something our global trading partners may take a dim view of. Make it part of annual motor tax, and you’re again running the risk of loading costs onto owners of older cars, who are obviously less able to pay extra taxes on top of an already significant burden of motoring costs.

After all that, it may not have the desired effect anyway. According to the Society of the Irish Motor Industry (SIMI), a NOx tax, or any other tax aimed at reducing imports, will really only be trimming around the edges of the problem. The biggest driver of imports is the relative value of the Euro and Sterling, and that is something that will rise and fall according to the whims of Brexit. In fact, the Irish car trade is quite possibly alone in being the one industry on either island for which a ‘hard Brexit’ would actually be beneficial — a calamitous exit of the UK from the EU would arguably allow the Irish Government to wrap vehicle imports up in endless red tape, making them more expensive and far less desirable to Irish buyers.

Of course, the economic and political havoc that such a Brexit endgame would wreak could well ensure that the number of imported second hand cars becomes the very least of our collective national worries. In the meantime, as long as Sterling stays low, the imports will continue, NOx tax or no NOx tax.