Robert Dowds (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

I thank the Minister for coming to the House to address this matter. The controversy around Volkswagen has caused people to focus on the issue. The Minister, or whoever holds the position after the election, will have a year long run-in to this but I ask him, nevertheless, if he will consider raising the tax on diesel relative to that on petrol. It should be done on a gradual basis so as not to affect too adversely people who are using diesel vehicles. The move towards diesel was influenced by scientific studies at the time of the Kyoto Protocol in 1997, which suggested that diesel vehicles emitted between 5% and 10% less pollution than petrol. Recent studies under the auspices of the World Health Organization, however, have classified diesel as a carcinogen causing lung cancer, bladder cancer and so on. Soot particles from diesel, which are very small, are finding their way into people's lungs. I am not suggesting that petrol is without its problems but the problem is particularly aggravated in urban areas where the damaging effect of diesel is worse due to its concentration.

After the Kyoto Protocol there was a gradual move from petrol towards diesel. This was understandable in the initial stages because the scientific evidence suggested it was a good idea and, in 2014, some 73% of new vehicles purchased in Ireland ran on diesel, while in Europe generally the total has risen to 53% of new purchases. Owing to the harmful effects of diesel, there is now a need to reverse this trend. In 2013, the European Commission noted that the economic policy on diesel fuel and car sales ignored the new reality. Diesel in Ireland is taxed at approximately 12% lower than petrol but in other countries, such as France and Belgium, they are moving towards the equalisation of tax on petrol and diesel. I ask that we move in a gradual manner in this direction. If we had a 4 cent rise in the price of diesel, it would yield approximately €80 million and such money could be used to improve public transport.

The general policy with regard to tax on fuel should be that the highest taxes be on the most damaging types of fuel and the lowest on the least damaging. This is beyond the issue of tax on fuel but people who use vehicles which are less damaging to the environment should also be compensated in some way, whether through their car tax or something else. We need to turn the negativity around the appalling deception of Volkswagen, which deliberately hid the extent of damaging emissions from its vehicles, into something positive. Research from the European Commission indicates that emissions from diesel cars can be 20 times worse than they appear to be under laboratory conditions. We need to use tax policy to protect the world environment and people's health as effectively as possible.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank the Deputy for raising this matter this afternoon. As the Minister for Finance, I recognise the negative impact that the combustion of diesel can have. Having said that, Ireland already has one of the highest excise rates on diesel in the European Union at 48 cent per litre. Over the lifetime of this Government, the excise rate on diesel has been increased by 8.5 cent per litre through a combination of increases imposed through the introduction of the carbon tax as well as specific excise increases on diesel.

The excises on mineral oils in Ireland raise approximately €2 billion for the Exchequer each year. Some €1.2 billion of this is attributable to diesel. These excises assist the Government in dealing with the costs of the externalities associated with the use of mineral oil, as well as helping fund services in general.

Excise is not the only policy tool we have to incentivise the use of cleaner modes of transport and vehicles on our roads. In July 2008, the basis of vehicle registration tax moved from the vehicle's engine size to the volume of carbon dioxide emitted from the vehicle. This means motor cars with higher emissions attract a higher liability. Also in July 2008, the system of annual motor tax moved from engine size to an emissions basis, thereby ensuring an ongoing economic penalty to the most polluting vehicles. These measures are designed to reduce harmful emissions into the environment. The average new car is now 28% cleaner than in 2007, which is leading to a cleaner overall fleet of vehicles on our roads. In addition, I have extended the relief from vehicle registration tax on electric vehicles and reduced rates for hybrid vehicles. The cycle to work scheme, which I continue to support, uses the tax system to encourage commuters to cycle to work instead of driving.

There are other considerations to be aware of when deciding whether to apply increases to the rate of excise on diesel. Diesel is the fuel of business and increasing its price increases the cost of doing business in the State and impacts on our overall competitiveness. Bearing this in mind, the rate of excise on diesel is lower than the rate of excise on petrol. Having different excise rates for petrol and diesel is the standard practice across the majority of member states of the European Union, and the difference between the respective rates in Ireland is in line with the EU average.

In April of this year, the National Competitiveness Council published a report entitled Cost of Doing Business in Ireland 2015, which indicated that diesel in Ireland is 5.5% more expensive than the average in the euro area. The overall tax on the price of diesel, at 60.3%, is the third highest in the euro area. The report states this has an impact on competitiveness. The Deputy will be aware, therefore, that a balance needs to be struck in this matter. The excise rate on diesel is considered annually in the context of the budget and I, as Minister, consider all the benefits and impacts when setting the rate.

The policies in place are working. The environmentally based vehicle registration tax and motor tax have resulted in a move to vehicles which produce fewer emissions. Ireland's rate of excise on diesel is high to discourage its use as much as possible. However, it is important to consider that diesel is the fuel of business and is already more expensive here than in many of our European competitors.

Robert Dowds (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

I thank the Minister for his reply. I am glad he drew attention to the incentives available to those who transfer to less polluting vehicles, including in the area of vehicle registration tax. I ask him to examine the action being taken in this area by France and Belgium.

While I accept the Minister's point that diesel is the fuel of business, the other side of the coin is that the fuel has harmful effects. I have proposed an increase in the excise rate on diesel. Another option would be to introduce a small reduction in excise on petrol and a small increase in excise on diesel.

It is important to try to persuade people, especially car drivers, to switch from purchasing diesel vehicles to petrol or, better still, hybrid vehicles. In this regard, will the Minister to set in train an examination of the various measures that could be taken in this area in the next budget?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

As I stated, I am aware of the externalities associated with the use of diesel. I have put in place a number of policies to reduce our dependence on diesel as a fuel of business. The use of natural gas as a propellant was provided for in budget 2015 at the minimum excise rate allowable under the EU energy tax directive. This measure will incentivise the largest consumers of diesel, such as companies with large fleets of trucks, to avail of this transport fuel. The rate of excise on diesel needs to be monitored carefully and, as Minister, I will not hesitate to raise it again if I believe that, on balance, there is a need to do so. I assure the Deputy that I will draw his remarks to the notice of my officials to have them taken into account if any alteration in the excise duty on fossil fuels is being proposed in next year's budget or subsequent budgets.