Car tax: for low-income families, the discount is almost three times as much

In the battle of measures to tackle high fuel prices, the cut in excise duty helps the wealthiest households the most, the exemption from vehicle tax helps the poorest households. Generally speaking, this contrast is well known; but when translated into figures, it becomes far more striking.
The Parliamentary Budget Office has provided the figures measuring the redistributive gap between the two measures. Four years ago, the National Audit Office was the first to detail the regressive impact of across-the-board reductions in excise duties. And today, with Focus 5/2026, it has carried out the same analysis on car tax. With opposite results.

So, to summarise the figures. The abolition of road tax on a first car with an engine power of up to 80 kW, or on a motorbike owned by someone who does not own an exempt car, reduces the expenditure of a typical household by 0.36 per cent. But there is no such thing as a ‘typical’ household. There are real households, which differ greatly from one another in terms of their economic circumstances and, consequently, their spending power. These households experience different effects from the road tax discount.
For those in the first decile – that is, the 10 per cent of households with the smallest budgets – the abolition of road tax reduces overall expenditure by 0.9 per cent, an impact that is therefore 2.5 times the average, measured across all households. The impact of the measure on total annual expenditure then gradually falls to 0.7 per cent in the second decile, to 0.6 per cent in the third, and so on down to 0.1 per cent in the bottom decile, where the most affluent households are concentrated.
This is because, in absolute terms, the benefit resulting from the exemption is almost linear across the various income brackets, as it applies across the board, affecting 63 per cent of households. However, the average of 168.4 euros calculated by the Government in the technical report accompanying Decree-Law 162/2026 (59 for motorbikes) obviously carries greater weight when the household budget is tighter.

The distribution pattern of the excise duty cut is mirrored, because the benefit remains essentially stable in relation to total expenditure, fluctuating between 0.2 per cent and 0.3 per cent across the various deciles, whilst it changes in absolute terms, increasing in line with the economic prosperity of those directly affected. The reason lies in the structure of the two levies: excise duties are linked to consumption, which is on average higher among wealthier households, who generally own more powerful cars, whilst road tax is uncorrelated with the number of kilometres travelled (it is also paid by those who regularly leave their car parked), and has an uncertain relationship with price lists (the tax rises much less progressively than the price of a new vehicle, and remains constant as the car ages and loses value).

Taken together, these factors are driving the redistribution brought about by the suspension of the vehicle tax. The Government is, however, working to make the exemption permanent – currently only scheduled to apply for next year – and the ruling coalition is also pushing to extend it: FdI is calling for the exemption to be extended to cars up to 160 kW in households with four children (which would cost 40 million a year), whilst Fi aims to abolish road tax for all first cars.
Making the exemption permanent would, however, also require a rethink of the residual tax, which not only ignores the use and value of vehicles but is only loosely linked to a car’s emissions. These issues do not currently appear to be at the centre of the political agenda; yet they are crucial for a tax relief scheme which, once made permanent, would lose its role as an anti-inflationary measure and would place an annual burden on the public finances.