Car scrappage: Does the government favour the motor industry too much?

Chips Lovell

Mod Note: This thread was hived off "Documenting Dublin's Cyle Lanes" since the discussion had gone off-topic.

tomasrojo wrote: »

SIMI really must have the ear of the government in a way that most lobbyists can only dream of.

I think you're wrong on this. The main purpose of the scrappage scheme from the government's point of view was not to protect the motor trade, but to boost consumer spending.

DirkVoodoo

What about Bill Cullen, don't you know how hard he works? He doesn't even sleep anymore and without the scrappage scheme he wouldn't be the amazing entrepreneur he likes to think he is.

what_traffic

el tonto wrote: »

I think you're wrong on this. The main purpose of the scrappage scheme from the government's point of view was not to protect the motor trade, but to boost consumer spending.

Roughly only 1-8 cars bought to date have been traded in for the scrappage scheme; see todays Irisht Times
http://www.irishtimes.com/newspaper/ireland/2010/0902/1224278051446.html"Official registration statistics for August which were released by the Society of the Irish Motor Industry yesterday show that 79,145 new cars have been sold so far this year, while 11,766 cars have been sold under the scrappage scheme."
So it has not boosted consumer spending by all that much. They probably would have got the same amount in taxes if they had a washing machine and fridge scrappage scheme.

Chips Lovell

what_traffic wrote: »

Roughly only 1-8 cars bought to date have been traded in for the scrappage scheme; see todays Irisht Times
http://www.irishtimes.com/newspaper/ireland/2010/0902/1224278051446.html"Official registration statistics for August which were released by the Society of the Irish Motor Industry yesterday show that 79,145 new cars have been sold so far this year, while 11,766 cars have been sold under the scrappage scheme."
So it has not boosted consumer spending by all that much. They probably would have got the same amount in taxes if they had a washing machine and fridge scrappage scheme.

That's still a net gain of at least €41 million for the exchequer. I doubt you'd get that from washing machines. By the way, even SIMI predicted that only 10,000 cars would go through the scrappage scheme at budget time last year.

what_traffic

el tonto wrote: »

That's still a net gain of at least €41 million for the exchequer. I doubt you'd get that from washing machines. By the way, even SIMI predicted that only 10,000 cars would go through the scrappage scheme at budget time last year.

How do you came up with the €41 million? SIMI Website? or Goverment?

Chips Lovell

what_traffic wrote: »

How do you came up with the €41 million? SIMI Website? or Goverment?

My own quick calculations. Max rebate under scrappage is €1,500. So if everyone availed of the max, the cost of the scheme is around €17.6 million. €470 million in VAT and VRT has been generated to date this year on new car sales. An eight of that is €58 million. Therefore net gain of around €41 million.

SerialComplaint

el tonto wrote: »

I think you're wrong on this. The main purpose of the scrappage scheme from the government's point of view was not to protect the motor trade, but to boost consumer spending.

They've boosted consumer spending on an imported product, so the vast majority of that spend goes outside the country - ludicrous.

what_traffic

el tonto wrote: »

My own quick calculations. Max rebate under scrappage is €1,500. So if everyone availed of the max, the cost of the scheme is around €17.6 million. €470 million in VAT and VRT has been generated to date this year on new car sales. An eight of that is €58 million. Therefore net gain of around €41 million.

You would still need to break it down on what the scrapped cars where traded in for to get the accurate figure. It is still based on an export model, we dont accrue the benefit that Germany got from their Scrappage scheme. Thats why I mention Washing Machines and Fridges - it would possibly have the same benefit if increasing consumer spending was your sole goal.

Chips Lovell

SerialComplaint wrote: »

They've boosted consumer spending on an imported product, so the vast majority of that spend goes outside the country - ludicrous.

Not that ludicrous when you think about it. A high proportion of the price of a new car is tax. You have to pay the top rate of VAT on it and then VRT of between 14 and 36 per cent.

What would be your alternative incentives for producing a similar lift in spending?

Chips Lovell

what_traffic wrote: »

You would still need to break it down on what the scrapped cars where traded in for to get the accurate figure. It is still based on an export model, we dont accrue the benefit that Germany got from their Scrappage scheme. Thats why I mention Washing Machines and Fridges - it would possibly have the same benefit if increasing consumer spending was your sole goal.

Most washing machines and fridges are imported too.

what_traffic

el tonto wrote: »

Most washing machines and fridges are imported too.

Thanks - thats the point I was making

Chips Lovell

what_traffic wrote: »

Thanks - thats the point I was making

Sorry, I misread you there.

el tonto

el tonto wrote: »

Not that ludicrous when you think about it. A high proportion of the price of a new car is tax. You have to pay the top rate of VAT on it and then VRT of between 14 and 36 per cent.

What would be your alternative incentives for producing a similar lift in spending?

Let's say the husband in household A wants to buy a product from household B. For whatever reason husband A is unable to go to household B himself in order to collect the product, and so asks wife A to pick it up for him. Wife A demands a 40% charge for performing this service. Husband A agrees. The total cost of the product to husband A is 100 euro, 40 euro of which is taken by his wife. So while Wife A is up 40 euro, the household makes a net loss of 60 euro, while household B makes a net gain of 60 euro.

While this is obviously a massive oversimplification, a basic economic fact is that the only way a country as a whole can accrue money is by earning more from exports than is spent on imports. This basic rule was completley forgotten over the past few years and all the money that came into our economy was borrowed from overseas by banks, to lend to developers to build houses and to amateur landlords to buy those same houses.

Meanwhile in the area of the documentation Dublin's cycle lanes...:pac:

Chips Lovell

Deleted User wrote: »

While this is obviously a massive oversimplification, a basic economic fact is that the only way a country as a whole can accrue money is by earning more from exports than is spent on imports. This basic rule was completley forgotten over the past few years and all the money that came into our economy was borrowed from overseas by banks, to lend to developers to build houses and to amateur landlords to buy those same houses.

Yes, but the goal of the policy was not to increase exports, but to increase consumer spending. You can pursue both.

el tonto

el tonto wrote: »

Yes, but the goal of the policy was not to increase exports, but to increase consumer spending. You can pursue both.

Consumer spending on imports! If it were consumer spending on a domestic product that would make sense but we do not manufacture cars in this country.

The goal of this policy was to boost the flagging profits of SIMI. It should be by now painfully apparent that anything a Fianna Fail lead government does will always be to the benefit of some vested interest group with strong financial links to the party.

Chips Lovell

Deleted User wrote: »

Consumer spending on imports! If it were consumer spending on a domestic product that would make sense but we do not manufacture cars in this country.

Tell me, what domestic product would you give a tax break on that would return the same benefits, i.e. approx €40 million in 8 months, as the scrappage scheme?

Deleted User wrote: »

The goal of this policy was to boost the flagging profits of SIMI. It should be by now painfully apparent that anything a Fianna Fail lead government does will always be to the benefit of some vested interest group with strong financial links to the party.

"Increased confidence will lead to increased consumer spending as people feel less need to save out of fear of the economic future. The Government introduced VAT and excise reductions in the Budget which have helped to support consumer spending. The car scrappage scheme has also proven its worth, with a resumption in spending which is reflected in tax receipts." - Brian Cowan. At no point has the government said that it was intended as boost to the motor industry.

el tonto

el tonto wrote: »

Tell me, what domestic product would you give a tax break on that would return the same benefits, i.e. approx €40 million in 8 months, as the scrappage scheme?

Bicycles. Oh wait...:D

el tonto wrote: »

"Increased confidence will lead to increased consumer spending as people feel less need to save out of fear of the economic future. The Government introduced VAT and excise reductions in the Budget which have helped to support consumer spending. The car scrappage scheme has also proven its worth, with a resumption in spending which is reflected in tax receipts." - Brian Cowan. At no point has the government said that it was intended as boost to the motor industry.

They didn't say they were going to change our economy from a foreign investment-export driven one to an over inflated property bubble that would burst only after having inflated the economy so much that we were no longer attractive to foreign investors either. What the say and what they do are very different.

el tonto

el tonto wrote: »

approx €40 million in 8 months

Oh and BTW, most of that 40 million has now left the country for good, how is that beneficial to the economy?

tomasrojo

el_tonto, this is the second time you and I have between us derailed a thread into economic theorising!

We really need to register with thepropertypin.com!

Chips Lovell

Deleted User wrote: »

They didn't say they were going to change our economy from a foreign investment-export driven one to an over inflated property bubble that would burst only after having inflated the economy so much that we were no longer attractive to foreign investors either. What the say and what they do are very different.

If someone says that a measure is meant to increase consumer spending, and it does, then I'll take it at face value.

Deleted User wrote: »

Oh and BTW, most of that 40 million has now left the country for good, how is that beneficial to the economy?

Where has has it gone?

Chips Lovell

tomasrojo wrote: »

el_tonto, this is the second time you and I have between us derailed a thread into economic theorising!

We really need to register with thepropertypin.com!

I read it, but don't post there.

el tonto

el tonto wrote: »

If someone says that a measure is meant to increase consumer spending, and it does, then I'll take it at face value.

Well I guess your less cynical/skeptical than I am.

el tonto wrote: »

Where has has it gone?

It has gone to the countries in which the cars that were bought were produced. Mainly Japan and Germany I would reckon.

Chips Lovell

Deleted User wrote: »

It has gone to the countries in which the cars that were bought were produced. Mainly Japan and Germany I would reckon.

That €40 million was the VAT and VRT on those new cars.

el tonto

el tonto wrote: »

That €40 million was the VAT and VRT on those new cars.

Oh sorry, well all the money spent on those cars that wasn't VAT or VRT or the profit made by the dealer has left the country, and while I don't have the exact figures, it's undoubtedly a very large figure.

Chips Lovell

Deleted User wrote: »

Oh sorry, well all the money spent on those cars that wasn't VAT or VRT or the profit made by the dealer has left the country, and while I don't have the exact figures, it's undoubtedly a very large figure.

Spending money on imported items is not a bad things per se, indeed it is unavoidable in a small economy like ours. It generates consumptions taxes and increases employment in retail.

BTW, you do know we had the highest trade surplus on record last year and that it's looking like it might be exceeded this year? Encouraging spending on domestically produced goods is not as big a priority as trying to boost economic activity and exchequer receipts.

el tonto

el tonto wrote: »

Spending money on imported items is not a bad things per se, indeed it is unavoidable in a small economy like ours. It generates consumptions taxes and increases employment in retail.

BTW, you do know we had the highest trade surplus on record last year and that it's looking like it might be exceeded this year? Encouraging spending on domestically produced goods is not as big a priority as trying to boost economic activity and exchequer receipts.

The trade surplus is due to the collapse of the property bubble economy and subsequent reduction in disposable incomes leading to reduced imports of foreign luxuries (like German cars).

Encouraging spending on domestic produce has been a cornerstone of economics for a long time, (remember the guaranteed Irish logo?) although these days it can often fall foul of EU regulatons.

tomasrojo

This article is more about the UK's scrappage scheme, but it's relevant to our one. Especially as we have even less of a car manufacturing base.
http://www.thisismoney.co.uk/bargains-and-rip-offs/motoring/article.html?in_article_id=502769&in_page_id=53949

Is subsidising a Korean firm really the best use of the UK taxpayers' £400m? Mindful of potential criticism, motor industry sources recently released figures which showed that while £400million of taxpayers' money had been pumped into the scrappage scheme, extra VAT revenue from the sales of new cars produced an overall Treasury windfall of £101m, so the taxpayer did not end up out of pocket.

But this is dubious accounting. For that 'extra' VAT simply came from people who, if they hadn't bought a new car, would most likely have been spending their cash on something else - a foreign holiday, perhaps, new clothes or a home extension. And these purchases, too, would have attracted VAT.

And the money might have continued to circulate in the domestic economy.

I've no problem with governments trying to stimulate domestic spending, but it usually has to be something more like a Keynsian investment multiplier. You can't have most of the money going straight to another country.

El Tonto, I would respectfully suggest that we agree to differ on this one as we have dragged this thread way, way off topic! Or perhaps this discussion could be moved to the Broomwagon?

Chips Lovell

Deleted User wrote: »

The trade surplus is due to the collapse of the property bubble economy and subsequent reduction in disposable incomes leading to reduced imports of foreign luxuries (like German cars).

We've had a very healthy trade surplus for a long time before the collapse of the property bubble

Deleted User wrote: »

Encouraging spending on domestic produce has been a cornerstone of economics for a long time, (remember the guaranteed Irish logo?) although these days it can often fall foul of EU regulatons.

Guaranteed Irish had it's heydey in the Eighties when we were either running a trade deficit or small surplus. It was a priority then.

Chips Lovell

This is Money wrote:

But this is dubious accounting. For that 'extra' VAT simply came from people who, if they hadn't bought a new car, would most likely have been spending their cash on something else - a foreign holiday, perhaps, new clothes or a home extension. And these purchases, too, would have attracted VAT.

Foreign holidays also pulls money out the economy. Few clothes are domestically produced either. Not sure about building materials. In addition, spending on these items generates VAT only, where as with motors there's the additional bump of VRT.

Chips Lovell

Right, new thread created. Slightly off-topic for cycling, but kind of relevant too in the context of public policy towards various groups of road users.

what_traffic

el tonto wrote: »

Tell me, what domestic product would you give a tax break on that would return the same benefits, i.e. approx €40 million in 8 months, as the scrappage scheme?



"Increased confidence will lead to increased consumer spending as people feel less need to save out of fear of the economic future. The Government introduced VAT and excise reductions in the Budget which have helped to support consumer spending. The car scrappage scheme has also proven its worth, with a resumption in spending which is reflected in tax receipts." - Brian Cowan. At no point has the government said that it was intended as boost to the motor industry.

Just reduce VAT to 20%; this would benefit all - not just the 11,000->12000 motorists. This would encourage consumer spending across all sectors

Lumen

If the objective was to increase tax receipts, then they should have just increased income tax to net the additional €41 million. Having someone spend €30k on a car to gain only a fraction of that in tax and have the rest leave the economy makes no sense.

If you want to boost tax receipts and keep the money in the economy, then subsidize local services not foreign-manufacturered products.

For instance, a spousal scrappage scheme.

You can trade in your existing perfectly functional but ageing spouse, and buy a younger but unemployed replacement.

The government subsidizes your divorce (money goes to spouse, gets taxed, remainder stays in economy), you pay the new bride a salary (gets taxed, remainder stays in the economy).

Net result: old spouse is better off, new one is off the live register for a year, you get some fresh action. More tax, less welfare payments, everyone's a winner.

Lumen for Taoiseach.

Beasty

Lumen wrote: »

For instance, a spousal scrappage scheme.

You can trade in your existing perfectly functional but ageing spouse, and buy a younger but unemployed replacement.

The government subsidizes your divorce (money goes to spouse, gets taxed, remainder stays in economy), you pay the new bride a salary (gets taxed, remainder stays in the economy).

Yes, but you can still probably get them cheaper from Poland ...

Lumen

Lumen wrote: »

For instance, a spousal scrappage scheme.

You can trade in your existing perfectly functional but ageing spouse, and buy a younger but unemployed replacement.

The government subsidizes your divorce (money goes to spouse, gets taxed, remainder stays in economy), you pay the new bride a salary (gets taxed, remainder stays in the economy).

Net result: old spouse is better off, new one is off the live register for a year, you get some fresh action. More tax, less welfare payments, everyone's a winner.

Lumen for Taoiseach.

This is genius. Genius or the ramblings of a madman, I'm not sure which. Either way very entertaining!

Lumen

Deleted User wrote: »

This is genius. Genius or the ramblings of a madman, I'm not sure which. Either way very entertaining!

I just realised that I'm proposing to legalise and subsidize prostitution.

I'll get right on to my local SF representative. That Mary Lou McDonald looks like she might be quite open minded.

Beasty

Tbh, we already have a tax break in the Bike To Work scheme, and I personally think car usage is already significantly overtaxed in Ireland compared in particular to the UK (where the main competition exists so far as Ireland is concerned).

The high levels of consumer taxation in Ireland do encourage direct importing by consumers, but as we have seen with the recent weakening of the Euro, there are other factors that can influence consumer behaviour - Indeed I was watching a programme last night where politicians in the North were expressing concern that their consumers may soon start driving south to shop!

Chips Lovell

what_traffic wrote: »

Just reduce VAT to 20%; this would benefit all - not just the 11,000->12000 motorists. This would encourage consumer spending across all sectors

In fairness, they cut VAT too in the budget, but by 0.5 per cent, so not as much as you're suggesting.

The British government took a similar approach, cutting VAT temporarily by 2.5 per cent. I'm not sure if it was a great success. Certainly I read reports of retailers complaining that it didn't boost spending.

Chips Lovell

Lumen wrote: »

If the objective was to increase tax receipts, then they should have just increased income tax to net the additional €41 million. Having someone spend €30k on a car to gain only a fraction of that in tax and have the rest leave the economy makes no sense.

Taxing income and taxing consumption have very different effects. By incentivising people to spend their money, not only do you boost the exchequer takings from consumption taxes, but you also stimulate economic activity and improve consumer sentiment. Hiking income tax doesn't have the same effect.

what_traffic

el tonto wrote: »

In fairness, they cut VAT too in the budget, but by 0.5 per cent, so not as much as you're suggesting.

The British government took a similar approach, cutting VAT temporarily by 2.5 per cent. I'm not sure if it was a great success. Certainly I read reports of retailers complaining that it didn't boost spending.

Yes but thats because they had raised it previously by 0.5 per in the Dec 08 budget. Not a very clever move to encourage consumer spending from the same Minister for Finance? We are still at the VAT rate we where back in 2008
Do you really believe that the scrappage scheme has encouraged more consumer spending overall in the economy?

Lumen

el tonto wrote: »

Taxing income and taxing consumption have very different effects. By incentivising people to spend their money, not only do you boost the exchequer takings from consumption taxes, but you also stimulate economic activity and improve consumer sentiment. Hiking income tax doesn't have the same effect.

Stimulation of consumer sentiment and consumption-based economic activity is completely irrelevant in the current economic climate. These are secondary concerns at the best of times.

Earn more, spend less, operate more efficiently, invest wisely. Pissing away money on cars meets none of these criteria.

Chips Lovell

what_traffic wrote: »

Yes but thats because they had raised it previously by 0.5 per in the Dec 08 budget. Not a very clever move to encourage consumer spending from the same Minister for Finance? We are still at the VAT rate we where back in 2008

Yep, I thought it was kind of dumb too.

what_traffic wrote: »

Do you really believe that the scrappage scheme has encouraged more consumer spending overall in the economy?

The numbers seem to indicate it, yes

Chips Lovell

Lumen wrote: »

Earn more, spend less

If everyone spends less, how do you earn more?

what_traffic

el tonto wrote: »

Yep, I thought it was kind of dumb too.

The numbers seem to indicate it, yes

What numbers are you looking at?

Looking at the
http://www.finance.gov.ie/documents/exchequerstatements/2010/endaugtaxanalysis.pdf

just released this afternoon
VAT take is down -6.4% on this time last year.

This shows neither the reduction in VAT or scrappage scheme has had any effect on consumer sentiment. Not sure how one would factor in the reduction in prices over the last year which would have affected this.

Lumen

el tonto wrote: »

If everyone spends less, how do you earn more?

The objective is for the country to earn more, and the people to spend less.

Do you don't balance the household finances by giving the kids more pocket money to spend on toy cars.

Chips Lovell

what_traffic wrote: »

What numbers are you looking at?

The numbers that came out today. Scrappage generated a net benefit of €41 million to the exchequer through spending.

Sure overall consumer spending is down, but what has that got to do with anything? What makes you so sure it wouldn't have fallen further without this?

As for consumer sentiment, it's been trending upwards since the budget

Chips Lovell

Lumen wrote: »

you don't balance the household finances by giving the kids more pocket money to spend on toy cars.

You do let them buy toy cars if it increases consumption taxes, encourages other people to spend and helps create or protect jobs. If the money is sitting in the piggybank, it does none of that.

Lumen

el tonto wrote: »

You do let them buy toy cars if it increases consumption taxes, encourages other people to spend and helps create or protect jobs. If the money is sitting in the piggybank, it does none of that.

The money would not be sitting in the piggybank, it would be paying off our enormous national debt, for which we are otherwise going to be paying billions a year, or spent on things which make us more productive or increase exports.

Scrapping a perfectly serviceable car does not in any way help productivity or exports, it's just destroying money.

Chips Lovell

Lumen wrote: »

The money would not be sitting in the piggybank, it would be paying off our enormous national debt, for which we are otherwise going to be paying billions a year, or spent on things which make us more productive or increase exports.

Scrapping a perfectly serviceable car does not in any way help productivity or exports, it's just destroying money.

So if I don't buy a car, I've to pay off the national debt instead?

All I'm saying is that if you focus overly on austerity measures you're risking stagnation.

Lumen

el tonto wrote: »

So if I don't buy a car, I've to pay off the national debt instead?

All I'm saying is that if you focus overly on austerity measures you're risking stagnation.

It's no about austerity measures, it's about sound economic management. Reducing waste and paying off debt is only one aspect.

You're going to have to pay off the national debt sooner or later. How does spunking money on a completely unnecessary car help that objective?

"Stagnation" is not a risk, since it implies some kind of equilibrium state. We're currently heading towards complete economic meltdown in the form of a bankrupt state. Fussing around with a few jobs in the car sales industry is just rearranging the deckchairs on the titanic, and is the sort of policy adopted by a government that has absolutely no clue how to get us out of the economic hole it has dug us into.