John O'Mahony (Mayo, Fine Gael)
Link to this: Individually | In context

Question 36: To ask the Minister for Finance his plans to address the rising cost of petrol, diesel and home heating oil; and if he will make a statement on the matter. [7170/11]

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

Ireland, as with other countries, has experienced an increase in the cost of petrol and auto-diesel. The increase in fuel prices is an international phenomenon. Fuel prices 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 over recent periods reflected additional factors such as geopolitical uncertainty in Northern Africa and the Middle East with potential supply disruptions.

The excise rates (including the carbon charge) in Ireland on motor fuels are 57.6 cent on a litre of petrol and 46.6 cent on a litre of auto-diesel. Ireland's excise rates are the ninth and fourth highest in the EU27 for petrol and auto-diesel respectively. However, our rates remain lower than many of our main trading partners and significantly lower than our nearest neighbour the UK. In relation to diesel used for heating, in Ireland the excise rate (including the carbon charge) is 8.9 cents per litre, this rate is lower than the majority of the EU 27 member states. Prior to the carbon charge being applied to diesel used for home-heating, the rates had not been increased since 1987.

The Exchequer yield from excise, as excise is set at a nominal amount, does not increase as the price of fuels increase. On the other hand, the yield from VAT per litre of fuel, as VAT is set as a percentage of the price, increases as the price of fuels increase.

It is on this latter basis that there are often demands to reduce taxes on fuel. However, I would point-out that the Exchequer gain may be limited because:

1. the increase in petrol and diesel prices reduces the quantity of such fuels being purchased,

2. spending in the economy is likely to be re-allocated to petrol and other oil products, and away from other VAT liable spending, and

3. the overall level of economic activity is reduced by higher oil prices.

It should also be noted that businesses are of course 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 (MGO or green diesel) used in the course of business is a deductible credit for business in the Irish VAT system. VAT on petrol can not be deducted/reclaimed.

There are no plans for temporary taxation adjustments for specific sectors or businesses in general, as to do so, could lead to significant costs to the Exchequer. The issue of rising fuel prices was briefly discussed by EU Finance Ministers at the ECOFIN meeting on 15 March and they reconfirmed the approach taken in 2005 and again in 2008, when oil prices were very high, which endorsed a coordinated approach towards not making distortional fiscal adjustments.