Dáil Éireann Debate, Tuesday - 24 January 2023
63. Deputy Ged Nash asked the Minister for Finance if he will consider extending the 9% reduced VAT rate on electricity and gas bills to 31 December 2023; if he will provide costings for extension of the measure; and if he will make a statement on the matter. [3084/23]
View answerI congratulate the Minister on his appointment and look forward to engaging with him in his position as Minister for Finance. I also extend my congratulations to the Minister of State, Deputy Carroll MacNeill, on her appointment and look forward to working with her.
I want to establish with the Minister the cost to the Exchequer of extending the reduced 9% VAT rate on electricity and gas bills, and indeed to establish if this is something the Minister is considering in continuing to support those who are finding it very difficult to make ends meet at the moment. We know that many of the once-off measures announced last September are coming to an end. The extension of the 9% VAT rate on electricity and gas bills will assist families over the next period of time.
I thank Deputy Nash for his good wishes. I look forward to working with him in a constructive spirit insofar as we possibly can. I am sure all of us across the floor will have certain clashes and disputes, but hopefully we can conduct our business in good spirits.
As the Deputy will be aware, the temporary reduction in the rate of VAT from 13.5% to 9% for gas and electricity was first introduced on 1 May 2022. In recognition of the ongoing difficulties experienced by households and businesses with the increasing cost of energy, it was extended on budget day for an additional four months, from 1 November to 28 February 2023. The estimated cost of the initial reduction was €46 million and the estimated cost of the extension was €45 million. As I have said on a number of occasions, in the coming weeks the Government will examine the full suite of taxation and other measures that are due to expire at the end of February. This will include consideration of the VAT rate on gas and electricity. While it is not possible to provide exact costings for an extension to the end of 2023, I am advised that the estimate for this measure is approximately €150 million.
I believe that because of the arguably short-term thinking of the Government, once the €4 billion in once-off measures melted away in January, families started to feel the pinch. We know that the families who are most exposed to energy poverty are those on low incomes, lone parents, older people living alone and people who are living in rural areas. The final electricity credit will be paid out in March. We need to think quickly and in a very holistic fashion about how those families are going to be supported beyond February and March because we know that inflation will remain high for the foreseeable future. That will have an extreme impact on those who are less well-off and in the bottom income deciles. For the sake of €150 million in the context of a budget surplus, I think the extension of the reduced VAT rate on electricity and gas bills would go some way towards assisting low-income families.
At the outset, as Minister I acknowledge the reality that many individuals and families are genuinely struggling at this point in time. Of course, I accept and recognise that point. I meet people in the course of my constituency work all the time and I know the lived reality of many. That is why we brought forward a budget with an overall package of new measures of €11 billion, of which €4 billion were once-off in nature and around €7 billion were permanent measures. I have to make the point that many of those measures, particularly on the permanent side, have only just kicked in recently, including the reduction in income tax of over €1 billion, the permanent increases in social welfare and the reduction in childcare costs, which has been warmly welcomed. Today we dealt with a memo on the elimination of hospital inpatient charges. There will be a further reduction in education costs later this year. Other measures will be implemented across the year in respect of the announcements we have made. I have to be consistent and say that there are a number of measures to be decided. They will be decided in the coming weeks. I will come back to the Deputy in a moment.
We have a cost-of-living crisis and inflation is high. One of the perverse things is that when inflation is high and goods and services are more expensive, the Exchequer is laughing all the way to the bank with increased VAT returns. It is important to reflect on that and to pass back as much as possible of that increase, or bonanza, to those who need it most by way of an extension of measures like those that were originally introduced in April, such as the VAT reduction on energy bills, and further extended in the budget.
I would like to ask the Minister a related question. Where stands the windfall tax on energy companies? What is the position on that at the moment and what is the expectation in terms of the introduction of what we might describe as a windfall tax which we are now permitted to introduce? It is something we should have done quite some time ago. What is the expected gain for the Exchequer?
First of all, I remind people that the next round of the electricity credit is being applied this month. A further round of that €200 credit will be applied to domestic accounts in March. Again, that is part of the measures that we announced in late September which are still working their way through. Because of the way in which we scheduled and staggered them, the benefits of those measures are being spread. I accept that in the month of January, many people are facing big energy bills, and that the consumption and use of energy has been higher over the last couple of months. Of course, that has coincided with the increase in the per unit cost. We acknowledge that point. Like others in the Government, I have made the point that not all of the measures will, in their entirety, end at the end of February. There will not be a cliff edge in that respect. However, we have decisions to make on a number of the measures that are currently due to expire in law. Those decisions will be made shortly. I will come back to the Deputy on the other matter he raised.
