Luring taxpayers into tax avoidance schemes with expensive tax breaks is hardly a viable fiscal strategy. That is the view of the UK Office of Budget Responsibility, an independent body similar to our Fiscal Council.
They commented on the acceleration in the adoption of electric cars, which now account for just over one in ten new UK sales and are poised for a 60 per cent market share within five years. There are two hits on the budget: The upfront tax break foregoes revenue to boost electric car purchases, allowing motorists to avoid fuel taxes afterwards.
A nice deal for motorists and good news for the climate, but not sustainable for finance ministers. Motorists pay high taxes for a reason – roads are expensive to build and maintain, and the revenue to cover those costs will go to waste. First gently, then rapidly, while the vehicle fleet electrifies. Transporter fleets are also becoming electrified, and the drop in tax revenue for road users is making itself felt in revenue.
Subsidies for EV roll-out in Ireland have been reduced but are still higher than in the UK. If the principle that road users should bear the costs of a functioning road network is maintained, the current taxation regime is unsustainable.
Upfront subsidies will phase out as producer prices fall as volume increases, but the key long-term cost to government budgets is the elimination of fuel taxes.
Electric cars are still expensive, but manufacturers expect that in a few years they will not be more expensive than petrol and diesel models. Even with subsidies withdrawn, the electric option will look attractive – and some form of purchase tax could be considered. But what is to replace the fuel tax, the main user fee for motorists and the main source of ongoing revenue to pay the billions a year needed to maintain roads?
There are four main reasons for discouraging private car ownership and use through the tax system and other means.
The first two, carbon emissions and poor air quality, particularly in built-up areas, are a consequence of running cars on petrol and diesel. There are two others that receive less airtime but have comparable social costs. These are traffic congestion caused by cars driving at peak times and the colossal waste of scarce road space taken up by stationary vehicles, both major urban problems.
Should it be possible to decarbonize the electricity system and replace gasoline and diesel with electric traction, the first two problems would be solved, if not completely, then to a significant extent. The promotion of electric vehicles is government policy here and the process is well underway.
Sometime in the 2030s, all but the heaviest road vehicles and a dwindling legacy of cars were to switch to electricity. There are countries whose electricity systems are already almost emission-free and use a combination of hydropower, wind power and nuclear power. It is our government policy to aim for the same result, based on ambitious renewable energy targets.
When cars are primarily electric in a decade and the power sector has greatly reduced its impact on climate, there will be fewer concerns about CO2 emissions or the impact on air quality of private vehicle use.
This leaves two good reasons to advise against private cars.
Congestion at peak times causes enormous costs. If you take your car out, especially if you’re commuting into the city at peak times, you’ll bear the cost of the delay yourself, but not the cost you impose on other road users. Even if cars should become more climate-friendly, there is a lot to be said for congestion charges.
And when you park your car on a city street and don’t pay for the privilege, you impose gratuitous costs on others by occupying valuable urban space that has alternative uses.
Both points were raised by Dublin City Council chief Owen Keegan last Tuesday, earning him an immediate rebuke from Senator Michael McDowell. McDowell notes that Dublin City Council provides employees with free parking at their place of work. He fails to point out that this perk does not count toward benefits in kind like company cars, an overdue reform that was proposed but not pursued when he was tánaiste. He also forgot to mention Leinster House, where Dáil MPs and Senators enjoy free parking for life – even after leaving office. City government workers, poor devils, are losing their free retired parking space.
There are 168 hours in a week, and the best estimate is that most cars in European cities are idle for all but 25 or 30 of those hours. But where? If it’s off-street parking, paid for, or owned by the motorist, well and good – the cost is internalized. But in Dublin an exceptional number of residents (including those in narrow Victorian streets) use free or almost free parking for stationary vehicles.
A street parking permit is available in parking meter zones for a whopping 50 euros per year. Day parking for non-residents on the same streets costs around €3 per hour, say €30 per day or €150 per week if you park from 8am to 6pm every weekday. This corresponds to the annual fee for residents in one week.
In the city center and inner suburbs, the current rent for an off-street parking space before the pandemic was around 3,000 euros per year. Handing out curbside parking for €50 a year is an amazing subsidy in a city where buses struggle through congested streets, not only with traffic but with a lane on each side occupied by stationary cars.
A book by Donald Shoup, an economics professor at the University of California, is described as a modern classic of urban economics The high cost of free parking. It was first published in 2011 and has been reprinted in paperback to meet demand.
The people on the city council must have read Shoup’s book. So should the defenders of the curbs in the leafy suburbs.
https://www.independent.ie/opinion/comment/freeloaders-in-the-leafy-suburbs-do-you-think-theyd-mind-paying-for-their-road-use-41514787.html Free riders in the leafy suburbs: Do you think they would mind paying to use their roads?