Plan to cut VAT on energy will ‘more than make up for carbon tax’

The Cabinet is expected to discuss a proposal to cut the VAT rate on energy from 13.5 per cent to 9 per cent.
Plan to cut VAT on energy will ‘more than make up for carbon tax’

By Rebecca Black and Cate McCurry, PA

A plan to temporarily cut the VAT rate on energy will “more than make up for” the planned carbon tax, Taoiseach Micheál Martin has said.

Mr Martin, Tánaiste Leo Varadkar and Green Party leader Eamon Ryan discussed on Monday a number of proposals designed to curb the rising cost of living.

This is expected to include a cut in the VAT rate on energy from 13.5 per cent to 9 per cent.

The move must be approved during a meeting of the Cabinet on Wednesday.

On Tuesday, Mr Martin said the move will more than offset the increase in the carbon tax.

Energy costs
Taoiseach Micheál Martin speaks about energy costs after a conference at Dublin Castle (Niall Carson/PA)

“The measures that Government will discuss tomorrow in relation to VAT reduction on gas and electricity, and indeed the fuel allowance, are designed to do just that and, in fact, they will more than make up, if not be far in excess of, the amounts that would have been raised up in terms of the carbon tax or the impacts of the carbon tax, so we’re fulfilling that commitment,” he said.

Mr Martin described a “unique set of circumstances”, including a “once-in-a-century pandemic creating its own inflationary cycle”, and now a war in Ukraine, which he described as “adding very significantly to the already increasing energy crisis”.

“In that context we want to engage with the social partners.

“We believe we need to look at a more medium-term approach to how we should respond to these unique set of circumstances whilst protecting the essence of our economy, the essential pillars of our economy, which have been growing strong as we emerge from the pandemic,” he said.

He added: “I’ve been very consistent that we cannot entirely deal with or respond 100 per cent to all of the increases that have happened as a result of the pandemic and as a result of the war.”

Mr Martin said €2 billion has been allocated to a range of measures, including reducing transport costs, medicine costs and waiving school-leaving certificate fees.

Asked why not make more than a 9 per cent reduction in VAT on energy, the Taoiseach said: “There are limits to what you can do because VAT is quite complex – in contrast to a lot of the comments that were made in the Dáil, it’s a far more complex arena now than simply saying to go to zero”.

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