Olivia Mitchell (Dublin South, Fine Gael)
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Question 462: To ask the Minister for Finance his proposals to mitigate the impact of rising petrol and diesel prices on the distribution sector and the many other businesses dependent on road transport in order to prevent fuel induced generalised inflation. [24978/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Fuel prices are driven by a range of factors including the price of oil on international markets, exchange rates, production costs and refining costs. The rise in oil prices over the last year also reflects additional factors such as geopolitical uncertainty, supply disruptions and strong economic growth in "catch-up" countries such as China. Mineral oil taxes are, of course, also a factor influencing fuel prices.

The position in relation to VAT is that the rating of goods and services is subject to the requirements of EU VAT law with which Irish VAT law must comply. The supply of petrol and diesel is subject to the standard VAT rate of 21%. EU law requires petrol and diesel to be standard rated. Therefore it would not be possible to reduce the rate of VAT applicable to motor fuel.

Changes in taxation are made in the context of the annual budget and, accordingly, any requests made regarding changes in tax rates are considered in the period leading up to the budget. The Deputy will appreciate that it is neither practical nor prudent to adjust tax rates between budgets. However, I would point out that I did not increase taxation on motor fuels in budget 2005. In addition it should be noted that Ireland's mineral oil tax on petrol and diesel is below that of our main EU trading partners.

At the recent informal ECOFIN meeting, EU Finance Ministers emphasised their continuous effective co-ordination in reaction to rising oil prices and agreed that distortional fiscal and other policy interventions that prevent the necessary adjustments should be avoided.