Dáil Éireann Debate, Thursday - 28 April 2022
1. Deputy Pearse Doherty asked the Minister for Finance the categories of energy for which he sought flexibility in relation to VAT in his written correspondence with Commissioner Gentiloni on 10 March 2022 and any subsequent correspondence or communication with the European Commission; and if he sought a special derogation or flexibility on VAT applied to home heating oil. [21562/22]
View answerI extend my condolences to the Minister, Deputy Donohoe, and that of my party on the passing of his mother, Caitlin Donohoe. Our thoughts and prayers are with him and his extended family at this difficult time for him.
I welcome the Minister of State to take oral questions this morning. The first question is to ask the categories of energy for which the Minister sought flexibility in regard to the VAT in his written correspondence with Commissioner Gentiloni on 10 March 2022 and any subsequent correspondence in communication with the European Commission, and if he sought specifically a special derogation or flexibility on VAT applied to home heating oil.
I thank the Deputy for raising this, and I join other Members in giving condolences to the Minister, Deputy Donohoe, on the sad passing of his mother.
In regard to the question at hand, the Minister for Finance and the Government are very conscious of the negative impact the rapid rise in energy costs is having on society. The Government is doing everything within its powers to address the issue. However, it is not possible to insulate people completely from these increases as factors causing them, such as the war in Ukraine, are outside our control. We believe, however, that the tax reductions introduced strike a balance between passing a significant benefit to consumers while managing the tax base and respecting the constraints of the energy tax and VAT directives at EU level.
In regard to the Minister's engagement with Commissioner Gentiloni, the Deputy should note that, in his correspondence, the Minister outlined the various actions he had taken to mitigate the cost of energy for households and businesses in budget 2022 as well as the additional €505 million package in February. He also outlined the further March package of measures providing for a reduction in excise duty on petrol of 20 cent, on diesel of 15 cent, and on marked gas oil of 2 cent.
The Minister acknowledged the importance of the energy tax and VAT directives, in particular the framework they provide for a consistent application of these taxes across all member states. However, in the context of the significant increases in energy prices, he outlined the limitations of the recent changes to Annex III of the VAT directive, given the reduced rates may only be applied to gas and electricity. Therefore, other fuels remain outside the scope of the reduced rates. In this context the Minister asked the Commission to consider allowing member states to respond to the crisis with greater flexibility than is permitted under the directives. On 23 April, Commissioner Gentiloni wrote to all ministers of finance in regard to energy and energy prices, responding to the points the Minister, Deputy Donohoe, and his European counterparts had raised. The Commissioner highlighted the current flexibility provided by EU directives, including the newly agreed amendment to VAT rates. The Commissioner indicated the Commission does not envisage any further revisions of the EU taxation framework to respond to the current crisis. The Minister, Deputy Donohoe, and his officials will continue to engage with the Commission and with other European counterparts to seek the maximum degree of flexibility for member states to respond to the current energy crisis.
As the Minister of State will know, Sinn Féin has been calling for the Government to engage with the Commission to secure a VAT reduction on household energy bills since November of last year. We did that because we understand and are aware of the provisions of the EU VAT directive and the imperative to retain our existing derogations, and that is why we called for engagement back then. We understood the process takes time, but I remind the Minister of State that these requests were met with opposition and derision from Government benches and indeed Government backbenchers. While I welcome the fact the Government has belatedly adopted our position, I regret it was not until 10 March of this year that the Minister formally wrote to the Commissioner in this respect. We have not seen the letter, we do not know the specifics of the request he made, and what the Minister of State read into the record in regard to this question, which is about home heating oil, did not mention anything in that regard. I will ask again whether the Minister, in any of his engagements with the Commission, sought any flexibility with regard to VAT as it applies to home heating oil.
Our context did mention the issue of VAT and the VAT directives in that correspondence from the Minister, and as the Deputy is aware, 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 arrangement came into effect on 5 April, so the Deputy can see discussions in regard to this were ongoing well before the end of last year. Under the new arrangement, Annex III of the VAT directive was expanded to include gas and electricity. This means Ireland can apply the reduced 9% rate to these products in line with other goods and services. The Government has made the decision to avail of the flexibility from 1 May, which is the start of the next period.
In regard to VAT on the heating oil, this new arrangement on VAT rates also preserved Ireland's historical derogation in regard to fuel and oil, despite it not being included in Annex III. It is on this basis that Ireland applies the 13.5% reduced VAT rate to supply of fuel and oil for domestic and commercial purposes. The current 13.5% rate applies to energy products known as a part rate, and I think the Deputy is aware of that.
We are going to go for it now for the third time and let us see if we can make any progress on this, because the question is very simple. Did the Minister at any time in his correspondence with the Commissioner on 10 March seek flexibility or a reduction in regard to VAT as it applies to home heating oil?
Home heating oil is the source of energy that has gone through the roof most. It has increased by 127% in the past 12 months. It has more than doubled. A third of households in the State use home heating oil as the primary source of heating their homes, and that increases to two thirds in the west and north west. Two thirds of households on the Border use home heating oil as their primary source of heat, compared with 8% in Dublin. Some 69% of households in Dublin use gas compared with 4% in Border counties. We must look at the regional disparities here.
I am coming back to the Minister of State again. The Minister wrote on 10 March, but we already knew from December, because it was in draft form, that he would be able to reduce VAT on energy and on electricity and gas. The question relates to home heating oil. Did the Minister ask in that correspondence for flexibility on a reduction on home heating oil? If he did not, will the Minister now do the job he should have been doing for the past six months?
As the Deputy will be aware, the current VAT rate of 13.5% applies to energy products. It is a part rate and cannot be reduced below 12%. It should be noted that member states must apply their standard rate of VAT to this product. Our historical derogation covered electricity, gas, fuel and oil. This meant Ireland applied the rate of 13.5% to those products in comparison with other European countries which applied it at a rate of more than 20%. Had Ireland adopted the reduced rate on the basis of Article 102, it would have automatically removed gas and electricity from the historical derogation, meaning they would have reverted to the standard rate at the end of the temporary period. The VAT directive now provides for the necessary flexibility for gas and electricity. As the Deputy has highlighted, home heating oil is the heating source of choice for many households in Ireland, including many in his constituency and mine. The Government has introduced a large range of other measures to help people with the cost of living, which also includes those measures.
So the answer is no, is it? The Minister did not ask.
