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Govt still awaiting VAT ruling from European Commission

By April 8, 2022No Comments

The Government has yet to receive an indication from the European Commission that it will give Ireland and other countries flexibility to reduce VAT on energy.

The Taoiseach Micheál Martin and Minister for Finance Paschal Donohoe have held discussions over recent weeks with the Commission but it is understood a reduction in VAT may not be possible.

In the Dáil today the Tánaiste Leo Varadkar told Sinn Féin’s finance spokesman Pearse Doherty that Sinn Féin’s proposal to cut VAT is currently not possible.

“We already have a discretionary VAT rate in Ireland. We have the lowest VAT rate, or one of the lowest VAT rates, in Europe,” Mr Varadkar said.

“We are already down to one of the lowest possible in terms of excise on petrol and diesel.”

He added if the Government was to cut VAT from its current rate of 13.5% to 12%, when the Government came to raise VAT again it would have to revert to 23% and Ireland would lose its special low VAT rate.

Mr Varadkar said the Government would introduce measures to offset the planned increase to the carbon tax before May.

Pearse Doherty had called for an emergency budget to tackle rising energy prices.

He pointed out that Ireland’s annual inflation rate is currently running at 6.7% and home heating oil is up 127% over the past year.

He called for a comprehensive package to tackle higher energy prices including for social welfare rates to be increased.

The Central Statistics Office earlier today confirmed that inflation in March rose to 6.7% from 5.6% in February, according to the latest Central Statistics Office figures.

This is the largest annual increase in the rate of inflation since November 2000 when annual inflation stood at 7%.

The war in Ukraine has sparked an energy price shock which is now spreading through the economies of Europe, including Ireland.

Both electricity and gas bills here are going up at over 20% on an annual basis with significant price rises due to take effect later this month and next month.

Today’s figures show that home heating oil took a leap of over 58% in March which means it has gone up on an annual basis by almost 127%.

Petrol is up just over 35% while diesel is up by 46%, the CSO said.

Flogas Energy today announced increases in its residential electricity and natural gas bills as it became the latest energy provider to announce price hikes.

Food inflation continues to rise at an annual rate of 3% with steeper increases for goods like bread, flour, pasta, margarine and oils which depend on ingredients from Ukraine and Russia.

One of the few bright spots for consumers was a 12% fall in the annual cost of car insurance.

The Central Bank earlier this week forecast that price growth would peak at 7.7% in the second quarter and remain above 7% for the third quarter before declining to 5.1% in the final three months of the year.

The CSO said that prices overall were 1.9% higher than February, the fastest month-on-month rise since monthly figures were first collected in 1997.

Commenting on the figures, KBC Bank Ireland’s chief economist Austin Hughes said the key culprit in the March inflation uplift was energy costs, as has been the case for some time.

“Indeed, six of the twelve main commodity headings in the basket of goods and services used to measure Irish consumer prices showed lower year-on-year inflation in March than in February, an outturn that suggests price pressures are still concentrated in a small but significant number of areas,” Mr Hughes said.

He said a record 18.7% monthly increase in energy costs means they are 43.8% higher than in March 2021.

“This scale of increase is without comparison through the past forty years,” he said.

While there were significant monthly increases in motor fuel, Mr Hughes said the main push came from a 58.5% month on month rise in home heating oil.

“That translates to a staggering 126.6% year on year increase,” he said.

“In addition, higher energy costs undoubtedly drove an 18.2% month-on-month jump in air fares that brought the annual rate to 69.2% from 42.3% in February,” he added.

Article Source – Govt still awaiting VAT ruling from European Commission – RTE – Robert Shortt

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