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On 2nd November 2007, the Finnish government announced proposals for a new emissions-based car registration tax system. This system took affect on 1st January 2008 and has dramatically changed the motoring market in Finland.
Solutions for pollution According to the Prime Minister of Finland, Matti Vanhanen, road traffic produces about 18% of all Finish CO2 emissions. He believes that, within “this sector there are huge possibilities to cut emissions by creating technological solutions for engines and developing bio fuels.” “As part of our own climate and energy strategy, the Finnish government proposed to Parliament that car taxation should be based on carbon-dioxide emissions,” revealed the Prime Minister. “The car tax levied on passenger cars upon registration and the annual vehicle tax levied on all registered vehicles depend on the vehicle's carbon dioxide emissions.” “I believe that this constitutes a clear incentive for consumers to choose cars which use less fuel. It is important to give clear signals to car manufacturers to develop and produce cars with significantly lower emissions and fuel consumption. Should we succeed in this, we will be able to pave the way for a substantial reduction of emissions.” Previously, car tax in Finland was charged at 28% of the purchase of new and imported vehicles. The average consumption of petrol-fuelled cars was just under eight litres per 100 kilometres. Drop in sales In the two months before the introduction of the new system car sales and prices fell. A new road tax system will be implemented in 2010, and consumers are considering this along with the new registration tax charges. This caused the dampening of the market in the last few months of 2007. New rates The new tax is charged at rates between 10% and 40%, depending on the rate of carbon dioxide the car emits. This system is a lot more specific than the one to be introduced here. There are no bands, but specifications for every gram per kilometre. Starting at 120g/km, for example, the registration tax applied to a vehicle will be 16%. If another vehicle emits 121g/km, the percentage applied will be 16.1%. The scale increases or decreases by 0.1% per gram/km. This means that discrepancies between bands are avoided, and a fair system is applied. This reform favours car models with low fuel consumption, and low emissions. The goal of the Finnish government is to get the average fuel consumption of cars in Finland down to four litres per 100 kilometres. Along with the new tax system, the Finnish government increased tax on petrol and diesel. Petrol increased by 5c per litre; while diesel increased by 5.5c per litre, further narrowing the gap between the costs of the two fuels. Public transport investment When announcing the new system, the government also announced increased public transport support within urban areas in allocating €10m per year. The philosophy of the new emissions-based car tax is to create a cleaner environment. And by upgrading the public transport system, the opportunity is there for Finns who no longer can afford private transport, or choose to use public transport for environmental reasons. Diesel leads the way Since the introduction of the new emissions-based tax system Finnish dealers have noticed a growth in the demand for diesel vehicles. In 2007, diesel cars took up a third of all sales for the year. In the first few months of 2008, dealers are reporting that this proportion has risen to a half. Engine size demand has also changed, with the proportion of 2ltr diesel engines falling from 40% to 28%, while 1.3-1.6ltr diesel engines rising from 13% to 20%. Demand has risen to such a degree that some dealers are worried that they may run out of small engine diesel cars to sell to these hungry consumers. Similarly, petrol cars saw a fall in sales of engines over 2ltrs, from 11% to 7%, while smaller 1.3-1.6ltr engines grew from 40% to 50%. Increased spending The reduction of car tax for many car models has seen an increased level of spending with 33,541 cars registered in January and February alone. In 2007, the number for the first two months of the year was 27,467. These figures were boosted by the delivery of 8,000 cars ordered last year, but postponed to take advantage of the new tax system. Finnish dealers are estimating that sales of new vehicles for 2008 will reach a total of 161,00. And as some consumers are saving thousands of euro on the new system, records show that they are using this money to spend on optional extras within the car.
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