Green Vehicle Use Could Seriously Hurt Government Revenue

Written By Thomas Ponco on Friday, May 18, 2012 | 9:30 AM

The first Sports Cars are considered to be (though the term would not be coined until after World War One) the 3 litre made in 1910 Vauxhall 20 hp (15 kW) and 27/80PS Austro-Daimler (designed by Ferdinand Porsche).

Published May 18, 2012


By Philippe Crowe


While many governments around the world have actively encouraged motorists to switch to greener forms of transportation, a prominent Think Tank in the United Kingdom says they could cost in other ways.



More specifically, a study by the Institute for Fiscal Studies (IFS) and commissioned by the UK’s Royal Automobile Club (RAC) Foundation has said efficient vehicles could blow a huge hole in official revenue collection.



Researchers found that by adapting to green vehicles, taxes collected on gasoline and diesel sales could drop from 1.7 percent of GDP today to just 1.1 percent by 2029.



In addition UK road tax revenues would drop from 0.4 to 0.1 percent during the same period, which would represent a £13 billion (approximately $20 billion) shortfall in revenue.



As a result, the RAC warns that British motorists (already some of the most heavily taxed in the world) could see duty actually increase as the government tries to make up for the shortfall.



“The irony is, that while ministers encourage us to buy greener, leaner cars, they are being forced to look at ways of clawing back the money motorists think they will be saving,” said Professor Stephen Glaister, director of the RAC Foundation.



“This isn’t scaremongering,” he said. “The [UK] Treasury has already announced a review of VED bands (Vehicle Excise Duty or road tax vehicle categories) to ensure drivers make a fair contribution to the public finances, even as cars become more efficient.”



According to Glaister, among the options available to the government are forgoing the money it receives from motorists, further increasing the duty on gasoline and diesel or introducing new taxes on alternative energy sources such as electricity for vehicles.



While the first and second options aren’t likely to appeal, the third risks derailing the entire green vehicle strategy, since there would be less incentive for motorists to switch to alternative-fueled cars.



Paul Johnson, director of the IFS, said he believes the best solution to the problem would be road pricing schemes that rate the amount of tax based on vehicle use and congestion.



"Petrol taxation does not reflect the fact that the costs I impose on others vary dramatically according to when and where I drive,” Johnson said. “So many drivers, in rural areas for example, are effectively overtaxed.”



The Guardian






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