Cheaper cars in EU... Malta still expensive

The price of new cars in the EU is increasing at a much lower rate than inflation, according to a new report issued by the European Commission yesterday.

Although Malta is no exception, the price of new cars on the island is still considered high when compared to that of the same models in other EU countries. This does not take into account another crucial fact: The average income in many of the EU member states is much higher than Malta.

According to the report, comparing consumer car prices in the EU by the end of last year, it emerges that it is much cheaper to buy the same car in neighboring Italy than in Malta even when including all taxes, namely VAT and registration tax.

For example, the price of an Alfa Romeo 147 in Italy is a staggering €8,885 cheaper than in Malta. The same applies to almost all the other makes including BMW, Honda, Mercedes, Nissan and Skoda.

The report shows that car prices in Malta last January increased almost across the board when compared to a year and a half before (see table). One of the few exceptions is the Mercedes range, which cut prices in Malta. According to the report, the price of a Mercedes Benz E220 Cdi dropped by €6,634 over the past 18 months.

The main reason for high car prices in Malta is the high level of taxation imposed by the government on new imported cars. Malta's rate of taxation (VAT and registration tax) is considered to be one of the highest in the EU. The most heavily-taxed car consumers are those in Scandinavian countries particularly Finland, Denmark and Sweden.

The situation in Malta is supposed to change in the coming months as the government has already said it will be introducing a different tax regime on the importation of new and second-hand cars based on environmentally friendly policies.

Malta is facing legal proceedings initiated by the EU which wants the island to stop charging VAT over and above the registration tax. Some countries in the EU have already introduced substantial changes to their car taxation policies, including lowering taxes on environmentally-friendly cars and new carbon-dioxide related taxes.

According to the EU report, these tax changes are one of the main reasons for the general decrease in car prices. The only exception has been France where the new CO2 related bonus/miles tax translated into a slightly higher increase of 2.5 per cent.

The EU report notes that, within the context of headline inflation pressures resulting from surging energy and food prices, nominal car prices have remained remarkably stable between January 2007 and January 2008 while they have appreciably declined in real terms to the benefit of consumers.

The EU price index for cars (reflecting actual prices paid by consumers, including VAT and registration taxes) rose by 0.2 per cent, against 3.4 per cent for headline inflation. The price change was also quite moderate in the eurozone (+0.6 per cent), significantly lower than headline inflation (+3.2 per cent).