One of the more controversial talking points in the recent coalition agreement concerns car owners. Car tax will soon be an additional expense that both current car owners and anyone looking to buy a new vehicle will need to take into consideration.

With each additional tax, it's important to understand the underlying issue it's trying to solve and what the benefits are for the taxpayer, who'll be taking on an increased financial obligation.

The government has stated its primary goals as raising budget revenue and moving towards a balanced budget. The secondary goals of the tax, as they are now being presented to the public, would be to encourage the purchase of more environmentally friendly vehicles and reduce dependence on automobiles in general.

Despite the somewhat unexpected inclusion of a car tax into the coalition agreement and the ambiguity surrounding its implementation schedule, the tax could potentially have a positive effect on altering car users' habits.

According to data from the European Automobile Manufacturers' Association (ACEA) from the previous year, Estonia has 609 cars per 1,000 inhabitants, placing us fifth in the EU in terms of car ownership.¹

And the trend is moving upwards—between 2017 and 2021, the number of registered vehicles in Estonia increased by a whopping 100,000.² After considering these numbers, it's hard to disagree with Markus Villig, the founder of Bolt.³ According to him, Estonians rely on cars more than is reasonable, and the car tax could be the key to changing people's behaviour.

Implementing a car tax is a good example of nudging society towards the desired collective shift by changing the habits of car owners.⁴ And so, what exactly are these positive changes that the car tax is aiming to bring forth?

The first and most obvious result is the reduction of traffic congestion in general, which, at least in Tallinn, is becoming a serious issue.

Households that own several vehicles may find an extra incentive in car tax to re-evaluate their travel habits by looking for better alternatives. As an added financial obligation, a car tax could curb the number of short and inefficient trips that waste a disproportionate amount of fuel.

Second, a car tax has the potential to incentivise the adoption of environmentally friendly vehicles that produce lower levels of carbon dioxide emissions.

However, according to a report by the Estonian Foresight Centre (a think-tank based at the Estonian parliament, the Riigikogu), merely adopting economical technical solutions will not meet the challenge of making mobility in general more sustainable^.5

Third, consumer interest in public transportation and other alternative modes of getting around could steer the local municipal governments towards improving the transportation networks. Preferably, in doing so, they would also include private companies as well as those who are providing smart software solutions to suggest alternatives to private vehicle ownership that would actually meet people's needs.

When discussing car tax and, in a broader context, the concept of privately owned vehicles, it is important to consider the needs of the people residing outside the major urban centres of Estonia. For them, car represents more than just a convenience; it is an essential lifeline.

The majority of jobs and essential services are concentrated in large population centres, often leaving personal vehicles as the sole means of reaching these locations.

Today and in the foreseeable future, cars generally offer clear advantages over other modes of transportation in urban and suburban areas.

The advantages include the convenience of adhering to a personal itinerary, the vehicle's capacity to accommodate people and things, and the freedom to (mostly) ignore the weather. Taking this into account, using a vehicle doesn't necessarily mean owning one; mobility models such as vehicle-as-a-service (VaaS) provide individuals with the ability to use cars as and when needed without the expenses associated with vehicle ownership.

What is more, the studies indicate that car-sharing services can reduce the number of vehicles in private ownership as well as the overall number of cars on the road.⁶

Of course, a car tax is not a magic bullet that will solve the issue of car dependency as a whole on its own.

And yet, it is a step in the right direction towards a more sustainable future. Hopefully, at least some of the revenue generated from car tax goes towards modernising the transport system to provide accessible and well-planned mobility models for both urban and rural areas.

The need for additional investments is all the more pressing because, with the number of hybrid and electric vehicles increasing, the revenue from fuel taxes is likely to decline in the coming years. In the past, a portion of this revenue was allocated to finance road network maintenance.

^{1 https://www.acea.auto/figure/motorisation-rates-in-the-eu-by-country-and-vehicle-type/}

^{2 https://www.acea.auto/files/ACEA-report-vehicles-in-use-europe-2023.pdf}

^{3 https://www.err.ee/1608963859/markus-villig-bolt-on-vaga-automaksu-poolt}

^{4https://www.researchgate.net/publication/352398948_Nugimine_kui_voimu_ja_valitsemise_tehnoloogia_Estonian}

^{5 https://arenguseire.ee/en/raportid/the-future-of-mobility-development-trends-up-to-2035/}

^{6 https://www.researchgate.net/publication/346065430_Does_Car-Sharing_Reduce_Car-Use_An_Impact_Evaluation_of_Car-Sharing_in_Flanders_Belgium}

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