Trevor Sargent
Ceist:115 Mr. Sargent asked the Minister for Finance his views on the forecast of increased employment as a result of an energy tax as contained in findings published by the ESRI.
Written Answers. - Proposed Energy Tax.
In a research paper published last year¹ the Economic and Social Research Institute, ESRI, examined the effect of a unilateral adoption in Ireland of a carbon energy tax of $10 per barrel of oil equivalent imposed for a ten year period to the year 2000.
They estimated that, if the proceeds were applied in full to reducing PRSI contributions, by the year 2000 consumer prices would be slightly higher than otherwise but gross wages would be lower — on the basis that the reductions in PRSI would have a beneficial effect on wage determination. In consequence GNP would be almost 0.5 per cent higher and total employment 0.75 per cent higher than otherwise.
In principle, I would agree with the thrust of the findings, given the assumptions stated by the ESRI. Clearly, any reduction in the cost of labour would be expected to result in increased employment. However, a number of qualifications arise with respect to applying the ESRI's analysis to current proposals about a carbon energy tax:
(a) The tax which has been proposed by the EC Commission would apply initially at $3 per barrel, rising by annual increments of $1 to $10 per barrel by the year 2000. As the proposed tax increase is less than that tested by the institute, its impact would be correspondingly smaller.
(b) A key element in the Commission's proposal is that the tax would not be adopted unless similar measures were taken by other OECD countries. The ESRI's analysis was based on unilateral adoption by Ireland. If the tax were to be adopted by the EC while other countries did not take equivalent measures there is a risk that the EC economy could be weakened. Any such weakening would have negative implications for Ireland, not reflected in the ESRI study, in view of our dependence on EC export markets.
(c) Consideration of proposals for energy taxes must have regard to sector specific implications, which the ESRI study, of its very nature, could not take into account.
Finally, I would re-emphasise the significance of the institute's assumption that the tax would be applied to a reduction of PRSI contributions. In the model used by the institute, this is a key factor in reducing labour costs and, hence, in promoting employment.
1 The Economic Effects of Carbon Taxes. Edited by J. FitzGerald and D. McCoy. ESRI Policy Research Series Paper No. 14, May 1992.