The issue of transport poverty is often used as an argument against higher car taxes. Indeed, some households with limited financial resources struggle to pay for their transport needs. However, today’s car use is also a luxury. This is illustrated by the many large, expensive SUVs on our roads, and it is reflected in economic data.
On average, the top 20% of earners spend more than six times as much on their cars as the bottom 20%. The wealthy even spend a larger proportion of their income on cars, making them a luxury good according to the economic definition (see graph).
Average expenditure on the purchase (blue) and use (orange) of cars as a percentage of household income for five income groups (Statistics Netherlands).
In recent decades, many Europeans have bought more expensive, larger cars. If needed, they can reverse this trend by choosing a cheaper car when the time comes for a replacement. Monthly car costs can be halved by trading in an SUV for a lower to medium-sized car without reducing mileage. This remains an affordable option for these drivers. Between 2001 and 2023, the share of SUVs in new car sales increased more than tenfold, from 3% to 39% (EU-27; ICCT data). Conversely, the share of lower-medium, small and mini cars more than halved from 69% to 33%.
Only around 5% of households in the Netherlands experience transport poverty. This mainly affects people on low incomes, the unemployed, welfare recipients and large families (see article). Therefore, policy should focus on generic measures to reduce poverty, such as raising the minimum wage and social benefits. If additional mobility measures are considered, they should be specifically targeted at these groups. One example would be a social leasing scheme for electric vehicles (EVs), which would allow people on low incomes to stop driving fossil fuel-powered cars. Another example would be a new bus route between residential areas with a low average income and industrial estates where many practical professionals work. A third would be supporting urban density which creates cheap accessibility as destinations are nearby. Such targeted policies could be financed by the EU's €65 billion Social Climate Fund. Member states should use these funds wisely.
On average, richer people drive more and therefore pay more fuel tax in the form of national excise duty and, from 2027, the ETS2. The top 60% of the population pays more than three-quarters of fuel tax revenues. (These statistics are from the Netherlands). Furthermore, higher car taxes are fair because currently, drivers cover only 40–50% of the social costs of driving. Therefore, increasing car taxes in combination with financial support for low-income households would be both economically sound and socially just. Those arguing against higher car taxes to avoid transport poverty should instead advocate this policy package. Poverty is too serious an issue to be exploited to promote the sale of luxury cars.
