Seán Haughey (Dublin Bay North, Fianna Fail)
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39. To ask the Minister for Finance his assessment of the impact on inflation of the reduction in VAT on gas and electricity to 9%; and if he will make a statement on the matter. [20564/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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Inflation picked up sharply over the course of the last year and in March stood at 6.9 per cent. Almost every advanced country in the world is in the same position, with euro area inflation reaching an all-time high of 7.4 per cent in March. The key driver of inflation over the past six months or so has been increases in wholesale energy prices, driven by the rapid rebound in global demand and, more recently, the war in Ukraine. In Ireland, energy prices are currently contributing almost 4 percentage points to the annual inflation rate.

The Government is very conscious of the impact of rising energy prices on citizens, in particular on those on low incomes, and has introduced a series of measures in recent months at a cost of over €2 billion to help address the rising cost of living. Specifically, this month, the Government announced measures amounting to almost €200 million, including a temporary reduction in the VAT rate for electricity and gas to 9 per cent, which will help offset some of the recent increases in energy prices. Households will make estimated savings of around €50 on gas supplies and €70 on electricity supplies on annualised basis from this measure. An additional once-off lump sum payment of the fuel allowance will also be made and the reduction in excise duty will be extended to mid-October.

These measures are in addition to the reduction in excise duty of 20 per cent per litre for petrol and 15 per cent per litre for diesel announced in March as well as the cost of living package introduced in mid-February, which amounted to around €500 million. Among the measures introduced in February were an energy credit of €200 to every household in the country and a once-off lump sum payment of the fuel allowance. Additionally, Budget 2022 contained a combined income tax and social welfare package amounting to almost €1.1 billion.

Together these measures will help alleviate some of the cost pressures currently facing households and businesses. However, it must be stressed that resources are limited; the priority is to minimise the impact on those who most affected, but we cannot cushion the impact for all. Given the current dynamics at play, we must remain prudent in our approach – conscious that broad fiscal measures at this point in time could lead to further inflationary pressures which would be counterproductive in nature. My Department will continue to monitor the inflation situation closely and take appropriate actions when necessary.