Brian Cowen (Laois-Offaly, Fianna Fail)

There is a misguided view that increases in fuel prices will yield a benefit to Government, as if the consumer has that extra money to spend and will continue to spend the same amount of money on other goods and services. Clearly, where people have a certain level of income and must use vehicles, the increased VAT yield from an increase in fuel prices is offset by the reduced consumer spend in other areas. People are still working with the same income but a greater proportion of that income will be spent on fuel than would otherwise be the case. It is a fallacious argument, therefore, to suggest that there are increased revenues for the Government overall. In fact, there is less consumer spend with the rest of their salaries due to the increased cost of transport.

The price of fuel is an international phenomenon. There is an agreement at eurogroup level not to unilaterally bring forward tax adjustments domestically. There is a need to take on the structural impact of increased energy prices across the board. VAT content on auto diesel and other fuels used in the course of business is a deductible tax credit, so VAT may be reclaimed by hauliers, fishermen and other businesses. With regard to excise duties, fuel used by farmers and fishermen is treated very favourably in comparison to other sectors. There is no sound economic rationale for reducing VAT or issuing VAT reductions, especially as these price benefits will be taken either by wholesalers or producers, thus leaving the public subsidising an unsustainable fuel price level from public funds. That is in line with the position taken by almost all our European colleagues.

In 2001, the then Minister for Finance, Mr. McCreevy, reduced the higher rate of VAT from 21% to 20%. He had to reverse that change in the following budget as the reduction was not passed on to consumers. That has been the experience.

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