Darren O'Rourke (Meath East, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

97. To ask the Minister for Public Expenditure and Reform if he will provide details of the up-to-date Government research his Department holds on the use of carbon tax funds (details supplied); and if he will make a statement on the matter. [51561/21]

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

In summer 2020, the Government asked the ESRI to undertake analysis to determine whether the Irish carbon tax could be increased in a progressive manner, with impacts on lower-income households and poverty offset through additional spending on social welfare supports.

The resulting ESRI research paper, “Carbon Taxes, Poverty and Compensation Options ” published alongside Budget 2021 stated that expenditure levels of just €50m - €55m, less than one third of the expected revenues raised from a €7.50 increase, were sufficient to counteract the regressive nature of the increase. Allocations of this level would result in a reduction in the poverty rate and could leave the lowest two income deciles better off than before the increase.

In light of the ESRI research and the commitment to ensure that the carbon tax is progressive, the Government has committed to very significant increases in a targeted package of social protection supports in Budget 2022. These supports were selected to counteract the impact of the increased carbon tax on low income households. The specific measures are: 

- An increase to the a Qualified Child Payment of €2 per week for children under 12 and €3 per week for children over 12 - This protects low income families and will reduce child poverty; 

- An increase in the Living Alone Allowance of €3 per week - People living alone are often the elderly most at risk of poverty or people suffering from a disability. These groups are likely to have higher energy needs than average; 

- An increase to the Fuel Allowance of €5 per week - This will compensate a broad range of lower income households (since the Fuel Allowance is means-tested) for the additional energy costs they are likely to incur due to an increase in the carbon tax. This will be combined with a broadening of the threshold for Fuel Allowance eligibility and an increase in the income allowed for the means test that is applied to applicants;

- An increase in the income threshold for the Working Family Payment of €10 per week – Research has found that children in energy poverty have a greater likelihood of respiratory illness. Using carbon tax funds to compensate low paid employees with children will lead to improved health outcomes, particularly when combined with the qualifying child payment.

The total cost of these interventions is projected at €146m in 2022. This will be funded by the additional carbon tax funds of €105m that have been allocated to the Department of Social Protection, with the remaining €41m cost met by the Exchequer. This allocation is nearly triple the level of expenditure recommended by the ESRI to ensure that that carbon tax increase is progressive. 

Analysis undertaken in my Department before the publication of Budget 2022 using SWITCH, the ESRI tax and benefit model, to simulate the impact of the carbon tax increase and the compensatory welfare package estimates 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. This is a tangible demonstration of the Government’s commitment to achieving a Just Transition.