Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I move amendment No. 2:

To delete all words after "That Dáil Éireann" and substitute the following:

"notes that: — the annual rate of consumer price inflation, as measured by the European Union's harmonised index of consumer prices, picked up sharply over the course of last year, and stood at 5.7 per cent in February;

— the key drivers of this increase are increases in wholesale energy prices as a result of the rapid rebound in global demand, global supply chain disruptions and the imbalance between demand and supply that emerged as the economy re-opened;

— more recently, as a result of the war in Ukraine and Russia's role in global energy supply, oil and gas prices have risen further and these increases will feed into higher inflation over the coming months;

— pass-through price effects are expected in other sectors, such as food via increases in the cost of fertilisers and fuel for example;

— Budget 2022 contained a large range of measures to protect households from the rising cost of living, including a personal income tax package worth €520 million and a social welfare package of over €550 million;

— in addition to the Budget 2022 measures announced in October last, the Government last month approved a further package of measures to the value of €505 million to mitigate the cost of living, including an increase in the energy credit to €200 including Value Added Tax (VAT), estimated to impact just over two million households;

— a lump sum payment of €125 on the Fuel Allowance will be paid to 390,000 recipients;

— there will be a temporary reduction in public transport fares of 20 per cent from the end of April to the end of the year, and this will impact approximately 800,000 daily users of Bus Éireann, Iarnród Éireann, Dublin Bus, Go Ahead, Luas, Dublin Area Rapid Transit (DART) and Local Link services;

— a reduction of the Drugs Payment Scheme from €144 to €80 will benefit just over 70,000 families;

— the Budget increase to the Working Family Payment will be brought forward from 1st June to 1st April;

— there are reduced caps for multiple children on school transport fees to €500 per family post-primary and €150 for primary school children;

— a further package of measures, to the value of €320 million, was introduced with effect from 10th March reducing the excise duty on petrol, diesel and marked gas oil by 20, 15 and 2 cent per litre respectively;

— an €18 million package of emergency support measures for licensed hauliers to address cost pressures arising from current high fuel prices has been announced; and

— the Government has engaged with the European Commission seeking further flexibility around the VAT and Excise Directives; and recognises that: — carbon tax is a key pillar underpinning the Government's Climate Action Plan 2021 to halve emissions by 2030 and reach net zero no later than 2050;

— the Programme for Government: Our Shared Future committed to increasing carbon tax and the Finance Act 2020 provides for a 10-year trajectory for carbon tax increases to reach €100 per tonne of CO₂by 2030;

— a significant portion of carbon tax revenue is allocated for expenditure on targeted welfare measures and energy efficiency measures, which not only support the most vulnerable households in society but also in the long-term provide support against fuel price impacts by reducing our reliance on fossil fuels;

— analysis undertaken using SWITCH – the ESRI tax and benefit model – to simulate the impact of the carbon tax increase and the compensatory welfare package has confirmed that the net impact of the combined measures is progressive and households in the bottom four income deciles will see all of the cost of the carbon tax increase offset, with the bottom three deciles being better off as a result of these measures; and

— in the long run, the best way to protect Ireland from the impact of international fossil fuel prices is to reduce our dependence on them, and we will achieve this through the progressive decarbonisation of Irish society and through the steps that will be taken to meet the Government's commitment to reach net zero greenhouse gas emissions by 2050.

I welcome the opportunity to discuss the issue of rising energy costs and what the Government has done to mitigate these increases. The House has engaged in a number of debates on the issue in recent weeks, reflecting the seriousness of the issue and the impact these increases are having on households and businesses throughout the country.

Let me begin by again stressing that this is a worldwide issue brought about by a perfect storm of global supply chain disruptions and the imbalance between demand and supply that emerged as the economy re-opened and global demand increased. More recently, as a result of the war in Ukraine and Russia's role in global energy supply, oil and gas prices have risen further and these increases will feed into higher inflation over the coming months. The final retail price of fuel is determined by a number of factors, including the costs of production, distribution, global market factors, international exchange rates, taxation and wholesale market contracts, as well as individual retail pricing policies. I am very aware of the severity of the financial impact that this is placing on Irish households and businesses. The current trends in energy prices are not unique to Ireland and are, in fact, part of global trends. In terms of explaining price dynamics, a multitude of factors are at work. For the sake of brevity, I will focus on the key drivers.

Demand for oil and other energy products such as natural gas has increased sharply following the re-opening of many economies in the second half of last year. Additionally, the increases in international gas prices are more complex and relate to increased demand from certain parts of the world, in part as a result of extreme weather events, lower than expected gas supply and low gas reserves. Unfortunately, Ireland, along with the rest of the EU, is a net importer of gas and, as a result, a price-taker on international markets. These gas prices are the most immediate factor affecting electricity prices in Ireland. Across Europe, wholesale natural gas prices have risen and remained high since the second half of 2020. Gas prices began to rise in mid-2020 due to factors such as strong demand for gas as the pandemic receded and the move from coal to gas increasing the demand for gas for electricity generation. Gas prices are now unprecedentedly high, with UK wholesale gas prices, where gas for use in Ireland is traded, reaching record levels in the recent past. Additionally, geopolitical tensions, including the war on Ukraine by Russia, continue to affect negatively international gas prices. This feeds directly through to retail electricity prices as the wholesale price of electricity correlates strongly with the price of gas. While the future is uncertain, current market expectations are that significantly elevated wholesale gas prices will continue into 2023.

It is clear that taxation of energy products in not behind current energy prices. Ireland's taxation of fuel is based on European Union law as set out in the energy tax directive. ETD. The ETD prescribes minimum tax rates for fuel with which all member states must comply. Ireland applies excise duty, in the form of mineral oil tax, MOT, to fuels used for motor or heating purposes. MOT is comprised of a non-carbon and a carbon component. The carbon component is also referred to as carbon tax. Deputies will be aware that the 2020 programme for Government committed to increasing the amount that is charged per tonne of CO₂emissions from fuels to €100 by 2030. The Minister for Finance, Deputy Donohoe, followed through on this commitment by introducing legislation, the Finance Act 2020, to provide for a ten-year trajectory for carbon tax increases to reach €100 per tonne of CO₂emissions by 2030. This measure is a key pillar underpinning the Government's climate action plan to halve emissions by 2030 and to reach net zero no later than 2050.

A further key component of the Government's carbon taxation policy is the hypothecation of revenues raised from rate increase to fund important just transition measures. It is important to note that a significant portion of carbon tax revenue is allocated for expenditure on targeted welfare measures and energy efficiency measures, which not only support the most vulnerable households in society, but also in the long term provides support against fuel price impacts by reducing our reliance on fossil fuels. Analysis undertaken using SWITCH, the ESRI tax and benefit model, to simulate the impact of the carbon tax increase and the compensatory welfare package has confirmed that the net impact of the combined measures is progressive. Households in the bottom four income deciles will see all of the cost of the carbon tax increase offset, with the bottom three deciles being better off as a result of these measures. In the long run, the best way to protect Ireland from the impact of international fossil fuel prices is to reduce our dependence on them. We will achieve this through the progressive decarbonisation of Irish society and through the steps that will be taken to meet the Government's commitment to reach net zero greenhouse gas emissions by 2050.

For context, it must also be noted that changes to carbon tax rates are having a relatively small impact on current energy prices. The budget 2022 carbon tax increase, which came into effect in October last year, added approximately 2 cent per litre in tax to petrol and diesel. The increase in rates for home heating fuels such as kerosene, gas and solid fuels was delayed until 1 May 2022 to mitigate against impacts during the winter heating season. It is clear that carbon tax is not the cause of current energy price inflation.

Let me now turn to the Government's response to the increase in energy prices. Less than two weeks ago, the Government brought a Financial Resolution to this House providing for excise duty decreases on mineral oil taxes with effect from 10 March. This provided for a 20 cent reduction in the excise rate for petrol and a 15 cent reduction on auto diesel, with a proportionate 2 cent reduction for the excise on marked gas oil, known as green diesel.

These measures were VAT inclusive and will last until 31 August 2022. They will continue for several months to come, right throughout the summer.

The Government has recognised the impacts of the current fuel price increases. While these trends are driven primarily by global factors, the Government made the decision to alleviate some of these impacts through the domestic taxation of fuel. The measures implemented provide significant mitigation against these recent fuel price increases. It is not possible to offset all of the recent increases, which are driven by market factors, just by using the taxation system. The excise reductions strike the balance between passing on a significant benefit to consumers while managing the tax base and respecting the minimum rates allowable under the energy tax directive from the EU.

The Government is acutely aware of the increases in consumer prices, especially the increase in fuel and other energy prices, and it is for this reason we brought in the temporary excise cuts two weeks ago. These measure come in addition to the recently announced package of measures to alleviate the impact of increased costs of living on households.

In terms of revenue impacts, the six-month decrease in mineral oil tax is estimated to cost €320 million. In putting these reductions in place, the Government had to take account of the restrictions of the EU excise and VAT directives. The combined effect of the measures in respect of the 15 cent reduction in excise on diesel, along with the scheduled 1 cent reduction to offset the biofuel obligation scheme increase and the diesel rebate scheme, meant that any further excise reduction would bring the effective rate below the minimum permissible rate.

In looking at the cost of home heating fuels, we were conscious of the need to retain our 13.5% rate on such fuels. In this regard, it has been well rehearsed that Ireland has retained its historic application of 13.5% to a range of services, including the supply of fuel, gas, oil and electricity services, and under the directive the rate applicable to such services can be maintained but cannot be reduced below 12%. If it is reduced below 12%, even on a temporary basis, it loses the derogation of the reduced rate and must be returned to the standard rate, which is much higher. We have engaged with the Commission seeking greater flexibility for member states with regard to the application of both the energy tax directive and the VAT directive in terms of our ability to address the issues facing our citizens.

The rapid rise in consumer prices is certainly unwelcome, and the Government is conscious of the impact on the Irish people. We have responded in a proactive manner and in line with policies taken in other jurisdictions. Some of the drivers are outside of our control and our policy response will help to mitigate their impact. The comprehensive response of Government to the energy crisis and in other areas will soon begin to have a positive effect. While this happens, we cannot compromise the progress we have made on implementing the climate policies which are critical to ensuring we reduce emissions and mitigate climate change impacts into the future.

See this speech in context