The long-waited Vehicle Registration Scheme, announced in the budget this evening, will see registration costs drop by 44% for vehicles up to 1000cc and by 28% for medium sized cars but the powerful cars will see registration costs rise from 25 to 45 percent.

Finance Minister Tonio Fenech explained that registration tax would be based on emissions of CO2, particulate matter and the length of the vehicles.

Payment of VAT on registration costs would be removed.

The first phase of the new registration scheme will be based on cars, including self-drive cars, bought from next January 1 but those cars bought this year can be included at the owners’ option.

The new registration tax will apply to commercial vehicles at a later stage.

Tax on second hand vehicles will be determined on the basis of their commercial value but there will be a high minimum tax on cars older than five years manufactured outside the EU, to discourage their importation.

Vehicles under the new registration tax will pay a higher vehicle licence tax which will be fixed for the first five years and then start to rise gradually.

With regard to cars already on the roads, the vehicle licences will start to rise marginally for cars older than seven years, particularly in the case of diesel powered ones, as a means to discourage old cars on the road.

Furthermore, commercial licences are to rise from the current €93 to €185. This does not apply for buses, coaches, mini-buses and trailers.

The minister said the government wanted to see a reform of the bus fleet, with vehicles of various sizes by 2010 and liberalisation of unscheduled services. The viability of reintroducing a tram service is under study.