The estimated yield from the annual increase in the carbon tax is not included in the tax revenue forecast in the Draft Stability Programme Update (SPU). There are two reasons for this.
Firstly, the expenditure estimates in the SPU were compiled on a technical basis with expenditure ceilings assumed to rise by 3.5 per cent annually. There were no further adjustments other than an assumed reduction in Covid expenditure, as well as allowance for additional expenditure associated with the two steams of EU funding — the Brexit Adjustment Reserve and the Recovery and Resilience Facility. Under these circumstances, including carbon tax revenue increases without the matching hypothecated increase in expenditure would have given an inaccurate presentation of the Exchequer position.
Relatedly, any long-term forecast for carbon tax revenue would need to consider, inter alia, the shift in demand from behavioural changes related to the tax; new technologies; the global price of crude oil; exchange rates; EU Regulations; and rare earth mineral prices. Given this complexity, officials from my Department, as well as the Revenue Commissioners and the Department of Public Expenditure and Reform are engaging on how best to take account of the annual carbon tax increases —and associated hypothecated expenditure — in medium to long-term fiscal projections.