Dáil Éireann debate -
Wednesday, 2 Apr 2025

Vol. 1065 No. 3

Financial Resolution: Value Added Tax

Minister of State at the Department of Public Expenditure, National Development Plan Delivery and Reform (Deputy Emer Higgins)

I move:

(1)  THAT the rate of value-added tax chargeable on the supply of electricity provided for by section 46(1)(caa) of, and paragraph 17(2) of Schedule 3 to, the Value-Added Tax Consolidation Act 2010 (No. 31 of 2010) and the supply of gas provided for by section 46(1)(caa) of, and paragraph 17(3) of Schedule 3 to, that Act, being 9 per cent until 30 April 2025, be extended until 31 October 2025 and that section 46(1)(caa) of that Act be amended accordingly.

(2)  THAT this Resolution shall have effect on and from 3 April 2025.

(3)  IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).

This financial resolution provides for an extension of the temporary reduction in VAT on gas and electricity which is due to expire on 30 April and revert to the original 13.5% VAT rate from 1 May. This financial resolution extends these temporary reductions until the end of October 2025. The estimated cost of this change is €85 million. The Government is conscious that energy prices are beginning to increase again and believes in this context that it is appropriate to extend this reduced rate of VAT, particularly given how high energy costs contribute to a rise in the cost of living. It should be noted that increases in energy prices are driven primarily by global factors over which the Government has no control. However a measure such as this does make a difference to households and businesses struggling in this uncertain economic environment by alleviating some of these increased price impacts.

I will outline the background to our ability to be able to apply these reduced rates to gas and electricity. With respect to VAT, Ireland has maintained an historical derogation in respect of the VAT rate on gas and electricity since 1991. This allowed us to apply a reduced 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 provisionally agreed in December 2021 with final sign-off on the amended text at ECOFIN in April 2022. This new agreement came into effect on 5 April 2022. Under this new agreement, Annex III of the VAT directive has been expanded to include gas and electricity. This means that Ireland can apply a reduced rate of 9% to these 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 2022, the start of the next VAT period. The measure has been extended since that time with the last extension being approved in budget 2025 up until 30 April 2025. The cumulative cost of the measure since its introduction is €631 million.

The VAT reduction from 1 May will add to the already substantial support provided by Government to help with the cost of living. Finally, it should be noted that the financial resolution allows this reduced rate to apply from 1 May. However, there is a requirement to have this matter formally legislated through statute within 120 days. It is proposed therefore to do this through the Finance (Local Property Tax) (Amendment) Bill 2025 which will be enacted before the summer recess.

An Ceann Comhairle

I call Deputy Nash for the Labour Party.

Deputy Ged Nash

I was not expecting to be called so quickly.

An Ceann Comhairle

I am sure, but some Members are not present.

Deputy Ged Nash

I am ill-prepared. I have an amendment to move but I assume it will be taken at a later point.

An Ceann Comhairle

It will be taken at the end of the debate but the Deputy must move it now.

Deputy Ged Nash

I move amendment No. 1:

In paragraph (1), to delete "31 October 2025" and substitute "31 December 2025".

I thank the Minister of State for introducing this measure. We in the Labour Party anticipated last October that we might be in this position at this point in time. The Minister of State was not in her current role then but she may recall that on budget night, when the financial resolution was moved regarding the extension of the VAT reduction for a further period, we proposed that the reduction be maintained at least until the end of 2025. We did so in anticipation of very difficult times for families and that, indeed, has come to pass.

Today, for example, SSE Airtricity confirmed that increases in energy prices it had previously announced will be implemented. The Government's resolution may have been informed by that. Experts, including bonkers.ie and its analysts, are pointing out, as we know from our own experience, that when one electricity company moves, others will surely follow. The ESRI report issued this week shows that low-income families in particular are finding it extremely difficult to make ends meet at the moment. We know sacrifices are being made and that low-income families, especially, including the 1,600 surveyed by the ESRI, are cutting back on heating and groceries. A total of 63% of those surveyed indicated that this is how they have been dealing with the cost-of-living crisis. That is bad for families and bad for society. Families are also cutting back on footwear and clothing.

We also know people are getting themselves into debt because of rising energy costs. We have a problem in this country with energy poverty. The scattergun measures introduced by the Government over the past few years were not targeted enough. Huge resources were allocated to those who may not have needed them. We in the Labour Party did not support that approach. What we need to do if we are to deal with energy poverty is introduce, for example, street-by-street retrofitting programmes. We proposed in our alternative budget and in our manifesto that we should move towards using a goodly portion of the Apple tax resource to implement a genuine national campaign of retrofitting to ensure we address energy poverty and meet our climate ambitions, which we are far away from meeting in 2030. Other energy companies will follow SSE Airtricity's lead in confirming today that the increases it announced last month will come into play. That will affect the average family to the tune of approximately €250. Other companies will follow.

We need an independent analysis of why Ireland has the second-highest energy costs in the European Union. Most of us practising politicians will understand why that is the case. We know we are still far too reliant on expensive fossil fuels to generate the electricity we need. We know we are far too slow to reach our targets in respect of what former Taoiseach, Leo Varadkar rightly said was our moonshot moment, that is, offshore wind generation. We can be more energy-efficient, we can meet our energy demands and we can be net exporters of energy if we do that.

I am concerned that the regulator seems to sign off on a routine basis, without any apparent analysis, on all the price increases introduced by energy firms. We have a problem with regulation in this country. The regulator seems to roll out the red carpet for big firms and screw householders and businesses with high energy costs without doing a proper analysis of why the prices are so high. We have toothless regulation in this country and consumers are paying the price.

I welcome this initiative by the Government. We anticipated on budget night last year that it would be required. The Government should have listened to the Labour Party. We made a formal request by way of an amendment to the Government's financial resolution that the reduced rate be extended to the end of this year. We are glad to see it will be extended until the end of October. We have no doubt that families will face more difficulties this year, especially in light of what we are going to hear tonight from Donald Trump. The net effect of additional tariffs will be higher costs for families on this side of the Atlantic and, indeed, on the other side as well. Donald Trump is about to engage in a massive act of national self-harm against his own people. We are all awaiting those announcements with trepidation.

I understand the necessity of bringing forward this resolution. We support it. As I understand it, I have formally moved my party's amendment. Will I get to speak on it later or is this my only opportunity to do so?

An Ceann Comhairle

The Deputy will have an opportunity.

Deputy Ged Nash

That is fair enough. I thank the Ceann Comhairle.

An Ceann Comhairle

The next speaker, with the agreement of the House, is Deputy Conway-Walsh. Is that agreed? Agreed.

Deputy Rose Conway-Walsh

I thank the Ceann Comhairle. We are all trying to get ready for the announcement at 9 p.m. That is the situation we are in. I apologise for being late.

I understand the absolute necessity to extend the 9% VAT rate on electricity and gas. The Eurostat figures released in October last year show that the average energy bill for an Irish household is €500 higher than the EU average. The figures are due to be updated in May and I doubt they will make for any less grim reading. We have the highest energy prices in Europe and this is crippling not only our workers and families but also our small and medium-sized businesses. This really speaks to what is happening in terms of our competitiveness and what we need to do to protect ourselves against the tariffs we are facing.

Media reports have indicated that SMEs are going to the wall because of huge energy costs. In October, the Government announced an energy subsidy of €170 million to provide approximately €4,000 to 39,000 hospitality and retail sector businesses. At the time, some in the business sector described the scheme as not worth talking about. Does the Minister of State have information on how many businesses have applied for and received the energy subsidy? There is currently extreme worry among Irish business owners regarding the imposition of US tariffs later today. We simply do not know the extent to which our economy will be affected. Even though the major threats at this point seem to point to the pharmaceutical and tech industries, any loss of jobs in those sectors will have a knock-on effect across the entire economy.

The Government needs to get to grips with this and to consult with executives in the North to ensure we have a whole-island approach to protect our island economy. While I welcome any and all business supports in light of the challenges facing our small and large firms, the elephant in the room at this stage is the Government's pre-budget commitment to lower the VAT rate on the food-led hospitality sector. That was done during the pandemic and a similar measure must be considered afresh and brought forward. This issue resonates far beyond employers, business owners and the many people who work in the sector. When well known restaurants and pubs close down, it is felt right across society. Those businesses make up an important part of our culture and are part of the social fabric of every city, town and village. We cannot have vibrant communities without a viable hospitality sector. I urge the Minister of State, in addition to this extension for electricity and gas, to consider a VAT reduction for food and catering businesses and other small service businesses. That was committed to by the Government but I ask that consideration be given to bringing it forward at this stage.

Deputy Pa Daly

Ordinary workers, families and businesses the length and breadth of the country are crippled by exorbitant gas and electricity bills. Week in and week out, people come to our office who are struggling to afford to keep the lights on and heat their home. Often, we have no choice but to send them to apply for an additional needs payment or to the Society of St. Vincent de Paul. That is why the extension of the lower VAT rate on gas and electricity is necessary. It is the least the Government can do.

Why is the Government not doing more to address Ireland's rip-off energy costs? As colleagues have noted, prices here are either the highest or second highest in the EU, at €500 more than the average. Prices are set to rise even further in the coming months with the recent SSE Airtricity announcement. The Government, in its wisdom, has decided to rip away supports from struggling households. Rather than making things easier, Fianna Fáil, Fine Gael, the Healy-Rae brothers and the Lowry-led Independent Deputies are determined to make things even harder.

I want to be clear: the electricity credit scheme should be kept in place until the prices reduce. Last month, the Government told us it had no intention of providing this essential relief to households this year but is it really the Government's plan to abandon workers and families to crucifying energy prices in the depths of this winter?

Electricity credits, while important supports, are really only a sticking plaster in a fundamentally flawed system that has developed over decades. It is also deeply regressive and inequitable. It is the unfairness at the heart of our energy system that leads to such high energy costs in the first place. For example, network charges and the PSO levy place a disproportionate burden on ordinary households, pushing up bills even further while larger energy users such as data centres get off relatively scot free. We have called out this deep unfairness repeatedly and the Government must urgently reform network charges and the PSO levy so that the burden is redistributed more equitably. I fundamentally refute the idea that households should be expected to pay for the damage wreaked by the recent Storm Éowyn through an increase in the standing charge.

Why can the profits being made by the energy companies not be invested in repairing the damage to the distribution network and make it resilient to the increasingly frequent extreme weather events? The Government also needs to get serious about accelerating the transition to indigenous renewable energy. Rather than continued overdependence on imported fossil fuels, we should not entrust Ireland's energy security to the hands of commercial LNG developers with a dubious financial history and untested or untried job creation records. This move makes a mockery of Ireland's commitment to achieving 80% renewable energy by 2030.

While the indigenous generation of renewable energy will be a prerequisite of reducing the cost of energy here, this will not, in isolation, fix a system that is fundamentally broken. As long as energy is treated as a commodity for private gain and profit rather than as a basic right and necessity, and with the overall influence of the common good, the price is going to remain unreasonably high and we will continue to have such high bills. Sinn Féin will deliver the wholesale change necessary to make energy affordable in a system that prioritises fairness over the corporate balance sheet. Ireland's energy system should be reoriented towards fairness, transparency and affordability and ensure that energy companies are held to account so that ordinary workers and families feel the benefit of the inevitable renewable transition in their pockets and not be continually overdependent.

The recent announcement regarding a State-led backup system should be that - State-led, State-prioritised - and be temporary. It should not, as I said, entrust the future of any backup system completely to private enterprise.

Deputy Cian O'Callaghan

While inflation on many good services has abated compared to what we experienced from 2021 through 2023, it simply would not be correct to say that Ireland's cost-of-living crisis has gone away, as I am sure we all agree. Lower inflation rates do not mean prices are falling; they just mean prices are not rising quite as fast as they were previously. The period of severe inflation between 2021 and 2023 was experienced by a society that did not have much room to manoeuvre in the first place.

Ireland was already a very expensive country in which to live in 2021. Compared with EU averages, it is even more so now. With the exception of Luxembourg, we are now the most expensive country in the European Union with prices of goods and services for households 45% above the EU average in 2023. There are many reasons for this. One of them is the chronic unwillingness on the part of previous Governments to make necessary investments to bring down the cost of living, including for key public services. Whether it is housing, healthcare, transport, childcare or education, people have for far too long been dealing with significant out-of-pocket costs for access to basic services that are free or very heavily subsidised in most other European countries. There have been some welcome initiatives, it is important to recognise, in recent years around public transport and childcare, but notwithstanding those there still remains a very big problem and there needs to be a lot more done in these areas.

Government has less control over things like the price of energy, of course, but there are still things that can be done to ease the burden on hard-pressed families. In our general election manifesto, the Social Democrats pledged to retain the lower 9% VAT rate on energy to provide support to households and businesses in difficult times. To do otherwise would be to place too heavy a burden on families and businesses of all sizes. It would also be unnecessary. The Minister of State will be just as aware, as I am, of the stories over the past three or four years of businesses facing monthly energy bill increases in the thousands or even tens of thousands of euro, the kinds of numbers that can make businesses simply unviable.

It is often the case that the larger the business, the larger the energy bill and therefore the bigger the hit, especially in some areas of manufacturing that are so important to our economy. Of course, they are under huge pressure at the moment, particularly with the impending announcements expected from Donald Trump with regard to tariffs and the severe negative repercussions that will have for some businesses, including some sections in manufacturing. Where it is possible for us to support businesses, help them keep cost increases to a minimum and maintain competitiveness, we must do so.

It is not just the Trump announcement. Hundreds of thousands of SSE Airtricity customers will also see their energy bills rise today. The average electricity bill for households is likely to climb by more than 10% while the average gas bill will rise by 8%. That will cost the average user approximately €300 per year, and more if they are heavy users, for example, a large family or household living in a poorly insulated home.

There are structural problems with our energy system that contribute to our high prices. We are yet to see the scale of investment that we need in renewable energy that would contribute to cheaper and more secure energy. In the meantime, postponing a return to the full rate of VAT on electricity and gas is a proportionate move given the economic circumstances we are in and the high cost of living that workers, family and hard-pressed individuals are in, and indeed businesses. I welcome this move, and the Social Democrats support it.

Question put: "That amendment No. 1 set down to the motion for the financial resolution is hereby negatived and that the motion for the financial resolution is hereby agreed to."

Deputy Emer Higgins

Is this the amendment?

An Ceann Comhairle

No, the amendment is negatived, so in general, this is on the motion.

Question put and agreed to.