Governments financial stability could be in trouble with increasing electric vehicles
State finances at risk with an increase in electric car take-up
A report carried out by the Department of Expenditure and Reform has laid out concerns over increasing uptake of electric vehicles that this could pose a ‘substantial risk to the stability of the state's finances’.
The government’s spending review into the incentives offered to people to switch to electric cars (EV) will lead to decreases in Exchequer revenues from motor and fuel taxation if there is continuing uptake.
Carbon tax receipts for 2018 were approx. €431m while fuel excise receipts in 2017 were approx €2 billion.
With this rapid increase of EV’s towards our expected climate action plan target it is expected that losses incurred 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 2030.
Severity of losses
It would appear that government reports are now saying that the costs of subsidising the adoption of electric vehicles “greatly outweigh the projected benefits”. This is ahead of their ambitious climate action plan to have 1m EV’s on the roads by 2030. This clearly wasn't thought out too well as the report warns to be aware of the severity of these potential revenue losses.
These reviews that come out ahead of the budget in October details that balancing the achievement of the Climate Action Plan’s targets on EV deployment with maintaining revenues will require “careful consideration and alternative taxation models will need to be considered”.
Interestingly enough the review highlights the current levels of aid given to those who wise to purchase electric vehicles. Ireland currently offers some of the best incentives to EV buyers including a purchase grant, vehicle registration tax relief, a toll incentive, a charger installation grant and reduced motor tax rates. These incentives would amount to between €10,141 and €13,616.
It would appear that the government fear these incentives will have a significant impact on their revenue and if it continues every 100,000 new EVs will cost revenue between €1.14 billion and €1.36 billion.
It would seem that while the government were in such a rush to set out the Climate action plan and with good reason, but they have not put near enough thought into the practicality of that plan. ‘
‘Even when accounting for the greenhouse gas emission and air quality benefits, the cost to the state of maintaining the current level of EV supports is very significant.’
Future budget issues
As has been previously mentioned with the increase in EV’s this year already topping the total amount of last year if this continues like this the 200m set out for the 2040 plan will run out much sooner than anticipated.
'While the current EV supports have proven effective at increasing EV take-up, at the current growth rates and absent reform, the €200m committed to EV deployment in Project Ireland 2040 will be exhausted by 2021.'
So how do we deal with this, remove the incentives altogether, which are giving people the motivation to change over to an electric vehicle? Instead of recommending increased supports for drivers, it states that 'a schedule of declining supports for EV take-up, which would end when the total cost of ownership gap between EV's and diesel and petrol cars is equalised, may provide a more sustainable pathway for government incentives moving forward.'
The main obstacle for people to switch to electric vehicles is the cost, so these incentives are imperative in the fight towards the 2030 target. Although an ever-growing concern is mounting within the government now as they have estimated in the review notes that it is already having an effect on funding and the cost revenue foregone to the end of 2018 has been estimated by the Department of Transport, Tourism and Sport at €5.74 million.
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