Brian Cowen (Laois-Offaly, Fianna Fail)

I explained the last time the Deputy raised this matter that the Exchequer yield from excise, as excise is set at a nominal amount, does not increase as the price of fuels increase. On the other hand, the yield from VAT, which is set as a percentage of the price, increases as the price of fuels increase. As Members will be aware, VAT receipts are falling and in a situation in which tax revenue is tightening, the Government cannot cut tax in any area without jeopardising funding for essential services. It also should be borne in mind that to the extent that spending in the economy is reallocated to petrol, diesel and other oil products and away from other VAT-liable spending, and to the extent that the overall level of economic activity is reduced by higher oil prices, there will be little or no net gain to the Exchequer.

I also must point out that businesses are entitled to reclaim VAT incurred on their business inputs, including VAT incurred on fuel. VAT incurred on auto diesel, for example, on marked gas fuel used in the course of business, is a deductible credit for business in the VAT system. According to recent EU data, Ireland has the ninth lowest petrol prices and the 12th lowest auto diesel prices of the 27 EU member states. It is mainly the newest member states that have lower fuel prices than Ireland.

At their meeting earlier this month, EU Finance Ministers discussed the difficulties created by high oil prices. They confirmed the agreement reached in Manchester some years ago that distortionary fiscal and other policy interventions should be avoided. The fact is that reducing taxes on fuels would send the wrong signal both to consumers and oil producers. We have to be careful not to exacerbate what is an already difficult situation.

Any measures taken will have to be targeted. Ministers met for over nine hours on the fishing industry. We will examine what is an EU wide problem at the next meeting of the Council of Ministers.

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