Dáil debates

Tuesday, 26 June 2007

3:00 pm

Photo of Tom HayesTom Hayes (Tipperary South, Fine Gael)
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Question 80: To ask the Tánaiste and Minister for Finance the environmental goods currently in the 21% VAT band which are to be subjected to review under the terms of the programme for Government. [17306/07]

Photo of Brian CowenBrian Cowen (Minister, Department of Finance; Tánaiste; Laois-Offaly, Fianna Fail)
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The programme for Government contains a commitment to examine the scope for reducing the VAT rate on environmental goods and services from the standard VAT rate of 21% to the reduced rate of 13.5%. This is just one of a number of initiatives in the programme aimed at delivering a cleaner environment.

In carrying out this examination, account will be taken of the growing range of environmental and renewable energy products which present opportunities to reduce our dependence on conventional energy systems and can make a contribution to tackling climate change. For example, energy efficient insulation materials, renewable energy systems, including wind, solar and geothermal systems, and the options arising in the bio-energy crop sector will be examined.

In considering a change in VAT arrangements for these, or indeed any other, goods and services, it is important to bear in mind that the treatment of goods and services is subject to EU VAT law with which Irish VAT law must comply.

It is important, however, to point out that the reduced rate of VAT of 13.5% may currently be applied to insulation materials and renewable energy systems where these products are supplied and installed as a single contract and where the VAT-exclusive cost of the goods does not exceed two thirds of the total VAT-exclusive charge to the customer. The bulk of supply and install contracts are likely to meet this so-called "two thirds" rule, resulting in the reduced VAT rate of 13.5% being applied. Consequently, under existing VAT arrangements, the reduced VAT rate can apply to environmental products where they form part of such a supply and installation arrangement.

The reduced VAT rate of 13.5% also applies to the supply of all fuel products, including wood pellets, used for home heating and light. The Republic of Ireland is one of only eight member states that apply a reduced VAT rate to the supply of fuel products used for home heating and light.

The purpose of our proposed VAT review is to examine whether there is scope within EU VAT law to further extend the application of the reduced VAT rate in the area of environmental goods and services. This and other measures under the programme for Government clearly demonstrate the Government's commitment to addressing the environmental challenges that we face.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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Will this review be completed in time for the 2008 budget so that we will see some of these proposals reflected in next year's Finance Bill? The Minister seems to be watering down expectations on the basis that most of the VAT concessions are already available if allowed for within certain contracts. Is the Minister considering green spot rating of products to allow for differential VAT rates on products according to their energy efficiency? Many products already have differential rating. Is this what the Minister has in mind to allow consumers pay a lower VAT rate on the same product if it has a lower energy use rating?

Photo of Brian CowenBrian Cowen (Minister, Department of Finance; Tánaiste; Laois-Offaly, Fianna Fail)
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The examination can consider all these issues. The law on VAT is a very technical area. EU VAT directives are the determining and over-arching legislative basis upon which these VAT issues are dealt with and we cannot take unilateral action to do what we wish regarding reductions in VAT, even though the public sometimes thinks we can. We must be in compliance with VAT law and that is often determined by the state of our VAT law in respect of goods and services at the time of the implementation of the directive. This explains the differing rates of VAT applying to various goods and services in different jurisdictions and which can often be a source of confusion to the public who question the reason we cannot move to those rates at this stage.

The examination will be comprehensive and will seek out the best way forward. As regards its timeliness, I will seek to have the examination completed as soon as is possible and practicable. In respect of any changes in our taxation arrangements, these are matters to be considered in a budgetary context, taking into account the overall state of the economy, and I will deal with them in the normal way.

Photo of Caoimhghín Ó CaoláinCaoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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In light of the fact that value added tax is a fundamentally regressive tax, will the Minister in the course of his review consider the possibilities of reducing VAT in a number of areas in order to relieve the burden on low income families in particular? What is the Minister's reaction to the proposal by the Irish Congress of Trade Unions that in order to combat the pressures on workers of cost of living increases, particularly since the advent of Towards 2016, the Government should reduce the rate of VAT from its current level of 21%, which is the second highest indirect tax in Europe?

Photo of Brian CowenBrian Cowen (Minister, Department of Finance; Tánaiste; Laois-Offaly, Fianna Fail)
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There are various rates of tax in existence and I refer to the rate of 0% on foodstuffs which is an important protection for Irish consumers and a rate which is not available in every other jurisdiction in the EU.

The question refers to a programme for Government commitment specifically in respect of environmental goods and services. It is in such a context that the examination will take place. It will be limited, being directed at that commitment, with no wider review envisaged. These are matters for consideration at the time of every budget. I continue to emphasise that it is not merely a case of asking why we should not change specific rates. There are considerations to do with EU law on VAT with which we must comply. The area is very technical and requires expert advice before one makes any moves.

Photo of Seán ArdaghSeán Ardagh (Dublin South Central, Fianna Fail)
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I will allow a final brief supplementary question from Deputy Burton, as we are running over time.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Is the intent behind the Minister's proposal to favour activities, services or goods that help reduce energy consumption or carbon emissions and, correspondingly, to punish or penalise those activities that result in excessive carbon pollution or are excessively inefficient from an energy perspective? What is the fundamental purpose of the proposed review of VAT? Perhaps the Minister might enlighten us.

Photo of Brian CowenBrian Cowen (Minister, Department of Finance; Tánaiste; Laois-Offaly, Fianna Fail)
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The purpose will be to encourage changed behaviour and the greater utilisation of more energy-efficient means of providing goods and services as a means of contributing towards greater energy conservation and raising public awareness of the importance of avoiding unnecessary energy use. That is the background to the review.

I am aware that Mr. Gordon Brown, in his capacity as British Chancellor of the Exchequer, has written to the EU Commission suggesting that it formulate a proposal whereby member states might apply reduced rates of VAT to energy-efficient products and energy-saving materials as an incentive for the private consumer to make more sustainable decisions.

I have no difficulty with the Commission examining such an approach and introducing proposals to the ECOFIN Council on the matter. It is in line with such efforts to establish policy initiatives. Upon examination, what can be done to facilitate far greater use of such technologies will be done.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Does the Minister for Finance have proposals regarding those suffering from fuel poverty, for example, the elderly, most of whom must use coal and other high-carbon fuels?

Photo of Seán ArdaghSeán Ardagh (Dublin South Central, Fianna Fail)
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That is outside the scope of this question, which deals with VAT.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Will the Minister take that into account?

Photo of Brian CowenBrian Cowen (Minister, Department of Finance; Tánaiste; Laois-Offaly, Fianna Fail)
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We have ensured that income support for people on social welfare and pensions has risen well in excess of inflation, the figure for last year being between 8% and 12%. We were able to consider such increases to assist people. There have been changes to fuel allowances and so on, for example, by extending the period for which people are eligible for such supplementary schemes, in an effort to deal with fuel poverty. That includes what has been happening with community-based initiatives for the insulation of social housing, elderly people living alone, and disabled persons' grants. All those are efforts to ensure that those most vulnerable to fuel poverty receive the necessary assistance so that it is not a serious problem for them.