Dáil Éireann debate -
Tuesday, 25 Jun 2002

Vol. 553 No. 5

Written Answers. - Tax Code.

Trevor Sargent

Question:

106 Mr. Sargent asked the Minister for Finance if his Department has developed a view on the ways taxation can be used to give incentives for energy saving measures, such as lower VAT on renewable energy technologies, heat insulation, bicycles and so on, in view of the clear link between fossil fuel usage and climate change. [14511/02]

Minister for Finance (Mr. McCreevy)

In general where taxation policy has an impact on outcome on the use of fossil fuels, it has focused on taxes on cars and motor fuels and provided for excise differentials to promote more environmentally friendly petrol. Tax reliefs have also been introduced in respect of the provision of wind energy.

Regarding VAT, even if changes in the rates of VAT were considered desirable for introducing energy savings measures, the options for using the VAT system to promote energy efficiency are limited. While we can maintain existing zero rates on certain food, books and oral medicines, we cannot introduce any new zero rates of VAT. It would not be possible to introduce new zero rates for bicycles or any form of insulation or any such product that is not now zero rated. Likewise there are some restrictions on the extent to which reduced rates can be introduced and the majority of goods and services which could be subject to the reduced rate would have no impact on fossil fuel usage.

In general however, it is not evident that making changes to VAT rates is the most appropriate way of incentivising energy saving measures. The effect of introducing a reduced VAT rate may not be evident in the overall price of an energy saving good. In addition, the price impact of any reduced rate of VAT may not be significant enough to change consumption patterns. Thus, for example, a reduced rate of VAT would have little impact on the overall cost of solar panels. Energy saving technologies are also subject to change. If an energy saving good is reduced rated, but is no longer as environmentally friendly as a newer product, it would be difficult to re-rate the older good and maintaining the reduced rate for both products in such circumstances would not produce an environmentally friendly outcome and would reduce Exchequer income from VAT.

The Deputy will appreciate that I receive many requests for VAT reliefs and reductions for different types of products and services. If it were possible to concede a relief in respect of energy saving measures, then it would lead to pressure for similar concessions in goods and services subject to VAT. The Deputy will appreciate that the yield from VAT makes a significant contribution to the funding of necessary public services in the State.

As regards the issue of climate change, the national climate change strategy provides a framework for achieving reductions in greenhouse gas emission reductions in the most efficient and equitable manner while continuing to support economic growth and to prepare Ireland for the more ambitious commitments that will be required after 2012. Taxation measures can play their part in attaining environmental goals.

The taxation proposals in the climate change strategy do not provide for an incentive based approach to resolving issues of climate change and minimising the use of fossil fuels. The strategy proposes the use of broad taxation instruments, which are integrated with overall economic and taxation policy with a least cost approach and which takes account of international competitiveness. In effect therefore the strategy foresees the introduction of new taxes or building on existing ones as a framework for climate change taxation.