Deputies will be aware from the Government's recently-published White Paper of the profound effect on the Irish economy and balance of payments of the enormous increases in the prices charged by oil-producing countries over the last 12 months. This year alone, the increase in our imported oil bill will be about £130 million. Next year, as the full effect of this year's price increases works through, the extra cost could be even higher.
There is no likelihood that oil prices will fall, over any period that one can prudently foresee, by anything like the rise of the last 12 months. There is a tendency in the public mind to associate current high oil prices with the oil boycott used during the Middle East war of October, 1973. That would be a mistake. That war may have occasioned the rise in prices—and it certainly caused a scarcity of supplies for some time—but the basic reason for current oil prices is that for more than a generation, world demand for energy has been rising much faster than its supply and oil has been by far the major source used for the new energy required. Certainly, the recent rise has been both sudden and steep and this has created many economic difficulties throughout the world; but the blunt fact must be faced that oil is at present an essential and in the long run an exhaustible source of energy and its price in future is bound to reflect these facts. The sooner our patterns of energy use reflect this knowledge the easier it will be to cope with the many economic difficulties that lie ahead. The days of cheap energy are gone; we must adapt our life-styles in recognition of this fact.
The present cost of oil to our balance of payments is not a temporary difficulty that can be coped with merely by financial arrangements; expensive oil is a permanent fact of life to which we must accommodate ourselves.
The Government have already recognised this by associating themselves with the steps taken internationally to cope with the changed energy situation. As far as security of oil supplies is concerned, we have become members of the International Energy Agency and have acceded to the agency's emergency oil-sharing programme. While this will give us limited protection, we will remain vulnerable in the event of another oil cut-off, since all our oil has to be imported. As regards a European Community energy policy, we have been participating in the discussions on its formulation in Brussels and have subscribed to the Council resolution of September last which called for a reduction in the rate of growth of consumption by means of a rational use of energy that would not jeopardise social and economic growth objectives.
It has become essential, therefore, to make the most efficient use of our existing supplies, to conserve energy— and particularly oil—as far as practicable and above all to alter the wasteful patterns of use which became the norm in an era of cheap oil. This will be an immense task and will ramify throughout the whole of our society. The recent White Paper has already set out several measures taken by the Government to help reduce energy consumption. These have all, so far, been of a non-fiscal character. The Government consider the time has come to use fiscal measures as a further step towards saving energy. Normally, this would be done at the time of the annual budget, but the need to curb oil imports has become too urgent to be bound by an annual timetable. The use of fiscal measures would, moreover, be in accordance with the advice given explicitly in the recent report on the economy published by the National Economic and Social Council and implicitly in the October economic commentary of the Economic and Social Research Institute.
Some 50 per cent of our total oil imports consists of crude oil for the Whitegate refinery. Another 30 per cent is accounted for by heavy fuel oil used by the ESB and major industrial users. Nearly 6 per cent represents other fuels used for public and commercial transport and in industry. It would be extremely difficult to achieve major economies in these products without causing widespread economic disruption and unemployment. The next major oil product we import is petrol, representing nearly 10 per cent of our total oil imports. This has a number of distinct characteristics which need emphasis.
In the first place, it is the product with the largest discretionary element: I am not saying it is a luxury, but it is largely used for private and to some extent non-essential purposes and curtailment of its use would not have anything like the economically disruptive effects that a cut-back of other fuels would.
Secondly, petrol imports have been growing steadily, both in absolute terms and as a proportion of total oil products imported. For several years past, grwoth in consumption has averaged some 7½ per cent a year as a proportion of our imports, petrol rose from less than 2 per cent in 1969 to nearly 9 per cent in 1973. If account is taken of the petrol output of the Whitegate refinery, which imports crude oil, petrol represents about 15 per cent of our total consumption of oil products.
Thirdly, the price rises of the last year have hit petrol relatively less than any other oil product. This is because the duty element in the price of petrol forms a sizeable fraction of its retail price. As a result, although the price of, say, heating oil has risen by well over 100 per cent during the past 12 months, the price of petrol to the motorist has risen by less than half. Moreover, as I have told the House previously, we now have the cheapest petrol in western Europe. In Italy, petrol costs nearly 88p a gallon, in France over 74p, in Austria, Belgium, Denmark, the Netherlands and Germany the price ranges from 69p to 74p a gallon. Even in oil-rich Norway it is 76p. In Northern Ireland and Britain the price of premium petrol is 63½p per gallon. The existence of such a large difference as nearly 13p on a gallon of petrol between the Republic and the North has obvious disadvantages for our economy. It would stimulate considerable petrol purchases in the Republic by motorists from the North. This "leakage" across the Border would result in a worsening of our balance of payments as additional oil was imported to supply the cross-Border demand.
In these circumstances, it would be unrealistic to expect to maintain our petrol price at just over 50p. Every gallon we use has to be imported and relative cheapness merely encourages waste. I emphasise that it is relative prices here that matter— if petrol prices are held steady while inflation causes the prices of other goods to rise by 15-20 per cent a year, then petrol becomes relatively cheaper and wasteful use quickly reasserts itself.
This has, in fact, been happening. Consumption of petrol, after falling by about 5 per cent in the first quarter of this year, was actually slightly greater in the second and third quarters than in the corresponding periods of 1973, despite a price increase of almost 50 per cent. It is significant that the percentage of larger cars with heavy petrol consumption in the total of new registrations has doubled between 1967 and 1973. These trends are evidence of unrealistic attitudes towards the cost of oil which has to be imported.
The Government have, therefore, decided that it is essential to bring about great economy in the use of petrol. We have considered whether this could be achieved by the imposition of some form of rationing, but we have rejected this approach in present circumstances. While rationing may have advantages in achieving a fair distribution of a limited supply, it is an extremely cumbersome method of reducing consumption, it poses a large number of administrative problems for suppliers and distributors, it is economically inefficient and is open to widespread abuse. The Government have, therefore, decided that a more efficient incentive to economy and to the elimination of waste is to raise the price of petrol by increasing the customs and excise duty by an amount which, allowing for the effects of VAT, will raise the retail price of premium grade petrol to 65p a gallon. The tax increase is approximately equivalent to a VAT tax on petrol of 36.75 per cent. I propose to insert a provision in the 1975 Finance Bill to convert this additional customs and excise tax on petrol into VAT. I am proceeding at the moment by way of customs and excise duties because it will take some time to integrate the increased duties into the VAT structure.
While the rise in petrol prices is substantial, I must point out that it will still leave our prices among the lowest in Europe. The Government are taking no action at present on other oil products, such as diesel fuel used in road vehicles, in order to safeguard the position of industrial and commercial users as much as possible in these difficult economic times. CIE passenger services will not be affected by this increase; this should encourage the use of public transport which would itself make a useful contribution to overall economy in the use of fuel. I would stress that there is just as great a need for economy in all oil products and everybody has an obligation to contribute to the national aim in this regard. Any relief to our present oil position that may arise from access to our own sources of oil or gas is both too uncertain in size to rely on and is, in any event, too far away in point of time to save us from the necessity for immediate action.
The increase in price will take effect from midnight to-night in so far as it concerns withdrawals of petrol from bond. My colleague, the Minister for Industry and Commerce, will be making the appropriate orders as regards retail prices. Dealers who have stocks bought at the former price should, however, continue to retail them at that level until stocks are exhausted.
This increase in taxation is not designed primarily to raise revenue for the Exchequer, but to curb consumption and to alter existing patterns of use. There is no precedent for this measure, so its ultimate effect is hard to gauge. I expect, however, that compared with the annual growth of over 7 per cent hitherto, it should produce a fall of 10 per cent or so over the next year in petrol consumption. As regards the balance of payments, the improvement will be modest, but it is an improvement that is within our own power to achieve and one which will, I hope, set a headline for users of oil products generally. If this measure does not, however, achieve the results sought, it will be necessary to look at the matter again. On the assumption that consumption does fall by 10 per cent or so, the Exchequer should benefit by about £27½ million in a full year.
I would point out that this is the first increase in petrol prices since 1969 to result from taxation measures. Every other increase since that date has resulted from other factors — the principal beneficiaries have been foreign oil producers and not any Irish interests — and I have no hesitation in saying that the additional funds accruing to the Exchequer will be welcome at a time when demands on the State coffers are far outstripping resources. On this occasion, Irish motorists can take comfort from the fact that their additional taxes will accrue to the benefit of the Irish people, whether by financing expenditure that could not otherwise be undertaken or by avoiding taxation that would otherwise be necessary. The position as regards taxation generally will, of course, be made clear in the budget, which will be presented on 15th January next.
In conclusion, I would remind the House that this measure represents but one element in a cohesive and comprehensive set of policies that will be appropriate to the new energy situation. The measure I have announced today is specific in its application and is meant to produce early results. It should not, however, be seen in isolation. A number of other specific measures already taken were indicated in the Government's recent White Paper. Other complementary measures like the expanded IIRS advisory information and technical consultancy services have brought about substantial energy savings in industry. Consideration of other conservation steps is proceeding at various levels and in differing agencies. Because of their far-reaching nature it will take some time for the full benefit of these conservation measures to materialise.
In two areas, however, early action is being taken. The Minister for Local Government will make an order fixing a maximum speed limit of 50 mph and the Garda Síochána are being asked to ensure that the limit is respected. It is estimated that the abolition of winter time would effect a worthwhile saving in fuel consumption. The Government will consult the interests concerned as regards the feasibility of maintaining standard time throughout the year. The Minister for Transport and Power will shortly undertake a comprehensive promotional campaign to persuade domestic users to reduce consumption by wiser use and this campaign will convey practical advice on how to save money on fuel costs.
Apart from direct Government action, however, there is considerable scope for effecting reductions in petrol consumption by measures which can be taken by the public themselves at relatively little inconvenience, such as the greater use of public transport, slackening speed, pooling cars, the use of smaller cars and so on. The overriding necessity is that future use of energy, in particular of oil, should be based firmly on a consciousness of its true economic cost — and value.
