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Fuel Prices

Dáil Éireann Debate, Tuesday - 9 November 2021

Tuesday, 9 November 2021

Questions (68)

Pearse Doherty

Question:

68. Deputy Pearse Doherty asked the Minister for Finance if he will consider providing relief to low- and middle-income households struggling with the cost of energy through an exemption from VAT in respect of domestic energy supplies or a rebate of VAT on domestic energy supplies in the winter months; and if he has or will discuss these matters with the European Commission. [54656/21]

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Oral answers (6 contributions)

The winter months will pose significant financial challenges for many households, particularly those on low and middle incomes. We see rising prices and a spike in energy costs. More than 35 price increases have been announced by energy providers since the start of the year and annual bills now are rising by between €400 and €500. I ask that the Minister take further action in this regard. Will he reduce VAT on domestic energy bills for the winter months, either through a VAT rebate or through negotiations with the European Commission for a temporary removal of VAT?

My apologies to the House for keeping Members waiting. I am advised by Revenue that the VAT rating of goods and services is subject to the requirements of EU VAT law, with which Irish VAT law must comply. The VAT directive obliges each member state to have a standard rate of VAT and allows that a member state may choose to have no more than two reduced rates of VAT which may be applied to certain goods and services.  In addition, within this rates structure the directive allows for historic VAT treatment to be maintained under certain conditions on certain goods and services.  Under this framework, Ireland has a standard VAT rate of 23% and two reduced rates of 13.5% and 9%.  Ireland has also retained its historic application of one of the reduced rates of VAT, 13.5%, to a range of services, including the supply of fuel, gas, oil and electricity services, and, under the directive, the rate applicable to such services cannot be reduced below 12%. There is no provision in the directive that would allow a VAT exemption or a VAT rebate in respect of domestic energy supplies.

The Government recognises the impact the increase in energy costs is having on households. In budget 2022, a targeted package of social protection interventions was provided for through both the redistribution of carbon tax receipts and direct Exchequer funding.

In the 12 months to September, the price of electricity rose by 21%, gas by 14% and home heating oil by a staggering 46%. We need to stretch every sinew to protect households from energy poverty this winter. Budget 2022 clearly failed to do that. The Minister has read out a response that is outdated as regards the EU directive. He will be mindful of the toolbox the Commission agreed, which does allow for rebates, although he has just put on the record that rebates are not allowed. I am sure he is aware of what his colleague in the Czech Republic is doing, where legislation has been passed to zero-rate energy bills for the winter months. It appears the Commission is going to allow that to happen. We are asking the Minister to stand up and have the backs of the households in question. The two ways of doing that are to look at the toolbox in order to grant rebates over the winter months, or engage with the Commission, as the Czech Republic is doing, to try to take the pressure off those households.

I was responding to the question the Deputy provided to me in writing. He asked about a rebate or an exemption from VAT for domestic energy supplies. I answered the question that was put to me. He made reference to the Czech Republic but it is notable that out of all the members of the European Union, at the moment only two are engaged with the Commission and the Union regarding a change in the VAT regime for energy pricing and the cost of energy. The Deputy is asking me to stand up. I am already standing by those who are affected the most by the change in energy pricing. That is why the Government has made the changes it made in the qualified child payment scheme. It is why we have increased the living alone allowance and the fuel allowance and it is also why we have increased the income threshold for the working family payment scheme. We are absolutely aware of the added pressure many are facing at the moment and we have recognised that through decisions that have already been made in the budget.

Some of those decisions will increase energy prices further by hiking carbon tax later next year. As the Minister mentioned, a number of countries are engaging with the Commission on this issue, the Czech Republic being one. Spain has already slashed the cost of energy bills by 11%. The Spanish Government has done that up until the end of the year. The Labour Party across the water has been calling on the Tories to zero-rate energy bills during the winter period. Britain is, of course, outside the European Union. The European Union itself came forward with a communiqué on 13 October that allows member states to rebate the VAT collected on energy, as it is conscious that these energy price increases - a 46% increase over the year on home heating oil, 21% on electricity and 14% on gas - are having a real impact on families. The Union is therefore allowing finance ministers, of whom the Minister is one, to take action.

There are two things the Minister can do. He can join others and engage with the Commission to zero-rate these bills for the winter months or he can consider giving a rebate. The €785 million in VAT receipts above what was profiled would well cover the cost of this proposal for the three-month period to which I referred.

The Deputy must note the starting positions of those other countries. The starting position of Spain and the Czech Republic is a standard rate of 21%. We already apply a lower rate than 21%. Our starting position compared to that of those other countries is very different. The starting position of Spain is 21% while our starting position is 13.5%. That is the difference. They have an interest in seeking to make a change in their VAT payment because their VAT rate is so much higher than ours. Those are the figures. While the Deputy is drawing attention to two other countries, the majority of other countries are handling this very severe issue for many families in exactly the same way as we are by the changes being made in the social welfare payments, which were announced on budget day, and also by other changes we have made in taxation, which have also been implemented in the budget.

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