John Perry (Sligo-North Leitrim, Fine Gael)

During a Topical Issue debate in the Chamber last week, Deputy Naughten stated the figure of €64 million and I addressed him in that context without the facts.

Last year saw a return to aggregate tax revenue growth for the first time since 2007. Exchequer data for the first three months of this year show a solid start to the year, with strong year-on-year growth in taxes. Taxes were also ahead of profile in the first quarter. Given the size of the gap between expenditure and revenues, it is clear that the adjustment process must continue on both sides of the account and the performance of tax revenues in the first quarter of the year is positive in that context.

The Government would be reluctant to introduce any measure at this point that might cost the Exchequer tax revenues. As the Deputy will appreciate, framing a budget is about making choices and introducing measures that are fair, equitable and robust. In this regard, the Government decided to maintain income tax levels, to remove more than 330,000 people from the scope of the universal social charge and to increase mortgage interest relief for home owners who bought their first homes during the 2004-08 period. The Government introduced compensating measures elsewhere in the tax system to finance such measures and our tax forecasts are robust, as highlighted in the first quarter Exchequer returns.

It is estimated that a reduction in excise on petrol and auto-diesel of 4 cent per litre would cost the Exchequer approximately €143 million in a full year and some €94 million this year, if applied from May. This amounts to €178 million in a full year or €119 million this year when VAT is taken into account. Without compensating adjustment measures elsewhere, this would make the achievement of our budgetary targets more challenging.

All of the quantitative fiscal targets set as part of the EU-IMF programme have been achieved and we are making good progress in returning our public finances to sustainability. It is important that we persist on this path and that we continue to meet the targets we have been set. Clearly the budgetary adjustment process presents challenges for policy makers, but we must remain steadfast in our commitment to meeting our budgetary targets. I compliment the Minister, Deputy Noonan, in this regard. It is important that we remain on a credible path of budgetary adjustment. Moving towards a balanced budgetary position is a necessary pre-condition for restoring the economy to sustainable growth and securing our re-entry to the international financial markets to source financing.

We fully appreciate that fuel prices are high and represent a significant financial burden on families. Fuel is a significant cost for people travelling to work and those involved in creating jobs. As with elsewhere, Ireland has experienced a significant increase in the cost of petrol and auto-diesel in recent years. The increase in fuel prices is an international phenomenon. They are driven by a number of factors, including the price of oil on international markets, exchange rates, production costs and refining costs. The rise in oil prices in recent times reflected additional factors, such as geopolitical uncertainty in north Africa and the Middle East with potential supply disruptions.

In 2010, the average price of auto-diesel was €1.23 per litre compared with today's average price of €1.61 per litre, a difference of 38 cent per litre. It is important to put on record the fact that, during this period, budget 2011's excise increases and budget 2012's carbon tax increases raised excise on auto-diesel by just over 3.5 cent per litre, VAT inclusive. Therefore, the increase in the price of auto-diesel is largely due to external factors outside the Government's control.

Including the carbon charge, excise rates on motor fuels are 58.8 cent per litre of petrol and 47.9 cent per litre of auto-diesel. When VAT is taken into account, the total Exchequer take, as a percentage of the total price, is 53.7% and 48.5% based on current average prices of €1.68 and €1.61 per litre for petrol and auto-diesel, respectively. While the tax increases are within the control of the Government, they must be seen in the context of difficult budgetary decisions. Nevertheless, it should be noted that our rates remain lower than many of our main trading partners' and significantly lower than our nearest neighbour's, the UK. Indeed, the price of auto-diesel is approximately 20 cent per litre less in this State than it is in the UK while the price of petrol is approximately 10 cent per litre cheaper.

As excise is set at a nominal amount, the Exchequer's yield from it does not increase as the price of fuels increase. As VAT is set as a percentage of the price, the yield from VAT per litre of fuel increases as the price of fuels increase. Accordingly, any increase in the tax take as a consequence of increasing fuel prices is confined to VAT. Opposition Members have been claiming that the VAT gain on increased fuel prices is approximately €60 million. I am advised by Revenue that, based on current fuel prices and current demand, the increased VAT take would be more in the order of €15.5 million per annum.

It should also be noted that businesses are entitled to reclaim VAT incurred on their business inputs, including VAT incurred on fuel. For example, VAT incurred on auto-diesel and marked gas oil, or green diesel as it is commonly known, used in the course of business is a deductible credit for business in the VAT system. VAT on petrol cannot be deducted or reclaimed. For example, at current average auto-diesel prices, a business can reclaim VAT of just over 30 cent per litre, thereby reducing the cost to the business from €1.61 to €1.31 per litre on average. That is the net cost when VAT is removed. People are not fully aware of that.

Given the current pressure on the public finances there is no scope for temporary taxation adjustments because they could lead to significant costs to the Exchequer. The programme for Government has stated that income tax will not be increased. The Government carefully considered the options open to it in the context of our commitments under the EU-IMF programme. Indirect taxes have a lower impact on economic growth and jobs. Accordingly, revenue raising in budget 2012 was largely in the areas of indirect taxes, including VAT and carbon tax. The decision to increase the carbon tax by €5 per tonne meant a lower increase across all fuels than if an increase had been applied solely on excise duties on petrol and diesel.

The rising cost of fuel is an international phenomenon. In this regard it should be noted that in 2005 and again in 2008, when oil prices last spiked, former Ministers for Finance subscribed to the approach agreed at ECOFIN. In light of the impact high oil prices can have on growth rates it was agreed that distorting fiscal and other policy interventions which prevent the necessary adjustments by economic agents should be avoided. That was the policy of a Government in which Deputy Dooley was a member. On 15 March 2011 the issue of rising fuel prices was briefly discussed by EU Finance Ministers and they reconfirmed the approach taken in 2005 and 2008.

Accordingly, given the kind of adjustment we have to implement we cannot start dismantling the budget three months into the year. It is irresponsible of Fianna Fáil to expect us to dismantle the budget without proposing alternative revenue sources. For the reasons I have outlined, I oppose the Bill.

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