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Dáil Éireann díospóireacht -
Thursday, 24 Jun 1999

Vol. 507 No. 1

Ceisteanna–Questions. Priority Questions. - Carbon Energy Taxes.

Derek McDowell

Ceist:

4 Mr. McDowell asked the Minister for Finance if he and his Spanish counterpart have opposed proposals to impose carbon energy taxes on an EU-wide basis; and if he will make a statement on Government policy on these proposals. [16126/99]

I assume the Deputy's question refers to Taxation of Energy Products, which the Commission published in March 1997 and not to the earlier proposals relating to carbon energy tax which are not being actively pursued by the Commission but which have not been formally withdrawn either.

The House will be aware of the earlier carbon energy tax that was proposed by the European Commission in 1992 and on which no agreement was reached. Following the failure to reach agreement on that proposal, the Commission introduced the proposed directive on the taxation of energy products in March 1997. The proposed directive suggested both increased taxes on items such as petrol and proposed new taxes on coal, gas and electricity. There were also complex arrangements to assist energy intensive industries with both obligatory and optional provisions for relief from the tax suggested. EU excise directives already require minimum rates for taxes on mineral oils, but taxes on electricity, natural gas or on coal etc. are not required. Ireland does not impose any additional excise taxes on natural gas, electricity, coal or turf. The Commission proposal provided for a three phased increase in existing mineral oil tax minima, the first of which was to come into effect on 1 January 1998. EU excises are expressed as minima and no upper limit is generally specified.

Ireland has expressed concerns on a number of occasions about the proposed directive. Our concerns relate to our peripheral status, the greater dispersal of population which adds to transport costs and the need to maintain competitiveness in the EU versus third countries. My particular concern as Minister for Finance is to ensure that any measures advanced to promote energy saving do not adversely affect Ireland's international competitiveness, particularly in relation to non-EU countries which compete with us and which may have very low taxes on energy. I am also concerned about the effect the imposition of any such energy tax would have on the consumer price index and how increased tax and new taxes would impact on the less well off members of the community.

It is important to emphasise that Ireland already has relatively high taxes on energy use, particularly those relating to motoring – value added tax at 21 per cent and vehicle registration tax at rates up to 30 per cent. Motor fuel taxes, while high, are significantly lower here than those applied in the United Kingdom, for example.

It is true to say that Spain and Ireland had difficulties at ECOFIN.

Additional Information

Spain has raised problems with the underlying principles of the proposal. At the ECOFIN meeting in May 1999, Spain referred to the negative effect the proposal may have on its economy in terms of inflation, loss of competitiveness, transport costs and consumer purchasing power. At the European Council summit in Cologne earlier this month, direction was given for a continuation of work on the framework proposals, bearing in mind the impact any agreement may have on the environment. My Department looks forward to working with the Finnish Presidency in this regard.

During his attendance at a conference in Dublin last Friday, I met with Commissioner Monti, who has responsibility for this area in the EU Commission. I made clear my reservations on the issue. However, I indicated to the Commissioner that Ireland would not wish to hold back the remainder of the Community and, therefore, would be willing to make every effort to reach agreement on the framework document bearing in mind, of course, my earlier remarks with regard to competitiveness and any adverse effects on the consumer price index and the less well off.

As I understand it, unanimous agreement is required at ECOFIN before a tax change of this kind can be made. Will the Minister confirm that he will use the veto to prevent any increase in the minima currently provided for?

The Deputy is correct in saying that unanimous agreement is required. Further discussions are anticipated on this matter at ECOFIN in autumn of this year. I have outlined my concerns in my reply to the Deputy's question. Commissioner Monti paid me a courtesy call on his visit to Dublin last Friday and we discussed this matter.

Ireland does not intend to be the dog in the manger and will assist in arriving at a compromise on this matter. We are a long way from agreement at present. Ireland and Spain have expressed very strong opposition to the proposal but ECOFIN seeks to arrive at consensus decisions. Let us not start erecting barriers at this stage.

In anticipation of the Minister's reply, I read the paper published by the Tax Strategy Group last year. In its introduction, it sets out the Kyoto Protocol commitments which we have undertaken, namely an increase in emissions of just 13 per cent. The paper states that the limit is tight and that it will not be easy for Ireland to meet it. It also states that taxation could play a part in assisting us to meet the commitments made. Does the Minister agree that taxation will play a part in meeting those commitments?

I accept that taxation can play a part in changing people's usage habits. If I were to double the price of cigarettes, I expect it would have a considerable impact on the level of consumption of cigarettes in the State. The EU submission, and those of other states is that taxation can play an important part in these patterns. I have a very open mind on whether taxation changes will have a considerable effect in a peripheral state such as Ireland or whether they will assist us in meeting our obligations under the Kyoto Protocol. I have listened to the debate and am willing to assist in finding a solution at EU level.

The Spanish position on this issue has been one of very trenchant opposition, more on the grounds of principle than anything else. While the Irish position has also been one of trenchant opposition, it has been somewhat more reasonable. I am willing to consider proposals, advanced by the Commission and member states, with a view to arriving at a compromise solution. However, the Irish position must be taken into account along the lines outlined in my reply.

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