COMMENT: Germany's car tax system needs reform

COMMENT
Franz W. Rother is Editor-in-Chief of Automobilwoche

Legislators in Austria, Italy and the Netherlands have already taken action. In Austria, for example, owners of diesel-powered cars that don't have a soot particulate filter are charged a penalty tax of 150 euros. For cars that do have a filter there is tax relief worth 300 euros.

And in Germany? After many months of arguing, Environment Minister Juergen Trittin and Finance Minister Hans Eichel have now reached an agreement with the help of mediation efforts by the nation's "car chancellor," Gerhard Schroeder. We may assume that lobbyists within the German car industry also exerted some gentle pressure.

Anyway, in 2006 and 2007, tax relief of 350 euros will be granted to buyers of new diesel cars in Germany with filters and 250 euros to those who retrofit their vehicles with particulate filters.

The German car industry seemed relieved. The president of the German Automobile Industry Association (VDA), Bernd Gottschalk, said the tax decision brings clarity to the market.

However, I doubt the move will really result in a surge in filter-equipped diesel vehicles.

Those who were involved in finding a compromise haven't reckoned on the federal states, which receive the motor vehicle tax. The states are now expected to finance the government's particulate-filter promotion. And, understandably, they aren't overly enthusiastic.

In coming months, the government and the federal states will be arguing over the financing concept. A quick solution is not expected.

Perhaps all these efforts should go in a different direction: fundamentally reforming the motor vehicle tax system in Germany.

A single authority should control all instruments used by the government to manage road transport. These include motor vehicle taxes and taxes on oil products as well as highway tolls. The federal states could then get the revenue from taxes on insurance policies as compensation.

Another point to be considered is if the calculation of the motor vehicle tax as it is today is still up-to-date. Currently the tax is based on engine displacement and the emissions classification. The latter is based on a car's engine.

Diesel cars currently are in a much worse position than cars with gasoline engines. To compensate for this, the tax on diesel is lower than the gasoline tax, even though it has both higher energy content and efficiency.

It would be much simpler, more effective and more future-oriented to harmonize these taxes and look only at vehicles' emission levels. After all, it's what comes out of the tailpipe that matters.

This would mean that different engine concepts such as diesel, gasoline and hybrid would finally have a level playing field. At the same time, this would open the way for alternative propulsion systems. The age of hydrogen may not be so far away.

I admit that this process will take time. And it helps neither the car buyers who want to know now what incentives they can expect, nor the suppliers who need a basis for calculating how much particulate-filter manufacturing capacity they will need.

However, the wait would be worth it. Because a solution would be found that reaches far into the future and not just as far as 2008.

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