I move amendment No. 1:
In page 15, between lines 21 and 22, to insert the following:
“Amendment of section 46 of Value-Added Tax Consolidation Act 2010
7. Section 46 of the Value-Added Tax Consolidation Act 2010 is amended, in subsection (1) by—
(a) the substitution in paragraph (a) of “at any of the rates specified in paragraphs (b), (c), (ca), (caa), (cb) and (d)” for “at any of the rates specified in paragraphs (b), (c), (ca) and (d)”,
(b) the substitution in paragraph (c) of “subject to paragraphs (ca), (caa) and (cb)” for “subject to paragraphs (ca) and (cb)”, and
(c) the insertion of the following paragraph after paragraph (ca)
“(caa) during the period from 1 May 2022 to 31 October 2022, 9 per cent in relation to goods of a kind specified in paragraph 17(2) and (3) of Schedule 3 on which tax would, but for this paragraph, be chargeable in accordance with paragraph (c);”.”.
The purpose of this amendment is to establish in primary legislation the legal basis for the financial resolution passed on 27 April to provide for a temporary reduction of VAT on gas and electricity. The previous VAT rate for gas and electricity was 13.5%. This had been reduced to 9% from 1 May to 31 October 2022. In terms of revenue impact, this six-month decrease in VAT is estimated to cost €46 million. As discussed on Committee Stage, the Government recognises the impact of the current energy crisis and understands how it has contributed to a rise in the cost of living. While the energy crisis is driven primarily by global factors, the Government has taken the decision to reduce VAT on gas and electricity to alleviate some of that impact, along with introducing a range of other measures.
As previously outlined, Ireland has maintained a historic derogation in respect of the VAT rate on gas and electricity since 1991. This has allowed us to apply a rate of 13.5% but also prevented us from lowering the VAT rate below 12%. However, following lengthy negotiations, amendments to the VAT directive were agreed in December 2021, with final sign off on the amendment text at the ECOFIN meeting last month. The new arrangement came into effect on 6 April last. It allows Ireland to apply a reduced rate of 9% to those products in line with other goods and services to which a reduced rate applies. The Government made a decision to avail of this flexibility from 1 May, the start of the next VAT accounting period for change.
All this ties in with the various cost of living measures that the Government has introduced in recent months. On budget day there were income tax and social welfare packages because this debate arises because of inflation and increasing costs borne by households. Some of the cost of living measures that the Government has introduced to mitigate some of the worst aspects of those costs were announced on budget day and came into effect earlier this year. One or two were brought forward more recently. The income tax and social welfare packages introduced on that day cost €1.07 billion. The energy credit of €200 inclusive of VAT, the 20% reduction in public transport fees and the €125 lump sum on the heat fuel supplement allowance cost €505 million in total. On 10 February, the drug payment scheme threshold was reduced to €80. Only a little earlier, it was well over €120. That is a substantial decrease in the threshold. An increase in the income threshold on the working family payment that was due to come in later in the year was brought forward to April. The the cap on school transport fees has been reduced. Excise duty was reduced on 9 March. That cost in the region of €320 million. On 11 March, a €100 per-week haulier support scheme payment was introduced. That cost €18 million. The VAT reductions on electrify and gas were also introduced around that time. The €100 lump sum fuel allowance payment was brought in, and on 13 April the excise duty reduction was extended and there was a reduction in the public service obligation, PSO, levy. The cost of these measures came to €118 million.
In total, these measures cost approximately €2.1 billion. That is quite a significant sum for the short period involved. No one can reasonably suggest that the Government can completely mitigate all the inflationary pressures within the economy, most of which are caused by factors outside the State.
Some have raised the Government gaining windfall revenues from rising energy prices. That is a fair question which people often ask. Excise on a unit of fuel is the same regardless of the price of fuel. The tax is based on volume. Therefore there is no extra revenue raised from fuel if the price increases. Excise duty is an important revenue stream for the Government and collected €5.8 billion last year. More than €2 billion of that came from fuel taxes. The taxes help to pay for everything from the wages of teachers, nurses and Gardaí to infrastructure like roads, schools and housing and all social protection payments.
The measures announced on 9 March reduced excise on motor fuel by approximately one third, which was extremely significant. The Government has now provided for an extension of this reduction until the next budget in October.
The amendment relates to VAT. There has been an increase in VAT receipts. In 2020, VAT receipts for domestic energy and auto fuel amounted to €755 million. In 2021, the amount involved was €933 million. That represents a 24% increase in the VAT collected on the previous year.
However, we must acknowledge that is not a normal year-to-year comparison when people are looking at these issues, as in 2020 we were very much dealing with the Covid situation and transport and many other things were much reduced at that time. It is very important to note the increase in VAT receipts is still less than the Government expenditure to help households with the cost of living. These include the various packages I have mentioned so far, such as the February package, the March reduction to excise duties and May VAT reduction on gas and electricity. That does not even take account of the measures announced in budget 2022. The idea of a tax windfall is therefore misleading. According to the most recent stability programme update Ireland is still on track to have a €2 billion deficit, so we are in deficit this year. The additional revenue arising from VAT on domestic energy products is still less than either of the measures announced to help with the cost of living or Ireland's projected deficit for the year.