Tax-Scheme Dead End Riles Ireland's Auto Industry

The Irish motor industry says thousands of jobs and tax revenue will be lost to the U.K. after the Irish government budget ignored a proposal to cut the vehicle-registration tax (VRT) on the purchase of a new car when a vehicle aged six years or more is traded in.

The Society of the Irish Motor Industry Director General Alan Nolan says the government’s decision to ignore its call for a €2,000 ($2,699) cut in VRT under its suggested swappage scheme is a huge missed opportunity.

“We put forward a detailed, well-costed plan that would have provided more than 2,000 extra jobs, particularly focused on young people, and it would have netted the government an extra €126 million ($170 million),” Nolan says in a statement.

The higher tax revenue would have resulted from increased sales volume, SIMI contends.

“This industry was also committed to making a significant contribution to drive swappage and to ensure the creation of these additional jobs, which won’t happen now. Recovery in the motor industry has been put back by at least another year,” Nolan says.

SIMI President Paul Linders says the government has ignored the difficulties of the auto sector, which he says is probably Ireland’s largest tax generator.

“It is likely that this will lead to further significant job losses in our industry, instead of the employment growth that could have been delivered,” he says.

Linders says 50,000 used cars will be imported this year because many people can’t step up from their old car to a new one. This, he says, has resulted in Irish consumers contributing more than €150 million ($240 million) in value-added tax to the U.K. Exchequer. The number of used-car sales bound for Ireland has supported more than 4,000 jobs in the U.K., he adds.

“In the current climate, I really cannot understand why the government has not considered it important to retain those jobs and VAT payments in Ireland,” Linders says.

SIMI says if a scheme such as swappage is not introduced, the auto industry would see the closure of 250 dealerships and 5,000 jobs lost over the next five years. The industry already has shed 12,800 jobs since 2007 along with the closure of 150 garages.

With new-vehicle sales at 50% of their normal levels, tax revenue has fallen from €2 billion ($2.7 billion) in 2007 to €1.4 billion ($1.9 billion).

SIMI had been confident the swappage scheme would be introduced after an independent survey found 41% of respondents said it was very likely they would buy a new car under the program. Another 37% said this was somewhat likely. Some 11% said it was neither likely or unlikely, and 12% said it was unlikely or very unlikely.

Ford Ireland Chairman and Managing Director Eddie Murphy says he is satisfied that the latest government budget avoids increases in motoring taxes that had been ratcheted up to unsustainable levels in previous budgets.

“But the lack of a swappage measure that had been suggested by the SIMI is a real lost opportunity, given the solid business case of the idea,” he says in a statement.

“Swappage is a win-win for the country and for the motor industry. And it would have helped to secure the jobs of the 36,800 employees working in this sector and could even have led to a significant increase in that number.”

Irish economist Jim Power says there are occasions when a market failure occurs that make government intervention desirable.

“The car industry is experiencing market failure at the moment,” he says in a statement released by SIMI. “Sales are very weak and the market is becoming increasingly driven by secondhand imports, which is not good from an Exchequer perspective, an employment perspective or indeed from a safety perspective.”