Less fuel tax 'would benefit producers'

REDUCING TAXES on fuels “would send the wrong signal both to consumers and oil producers” according to Taoiseach Brian Cowen, who insisted that “we have to be careful not to exacerbate what is an already difficult situation”.

He said: “If we use the taxation system as a means of assistance, we will provide benefit to the producers and not to the consumers. The benefit will go to those who are already getting a higher price for their product.”

Mr Cowen told the Dáil that it was mainly the newer EU member states that had lower fuel prices than Ireland, which has the ninth lowest petrol prices and 12th lowest diesel prices across the EU, according to recent data.

Mr Cowen told Fine Gael leader Enda Kenny that a recent EU meeting of finance ministers reconfirmed their agreement “that distortionary fiscal and other policy interventions should be avoided. Any measures taken will have to be targeted. Ministers met for over nine hours on the fishing industry. We will examine what is an EU-wide problem at the next meeting of the Council of Ministers.”

Mr Kenny had said “fishermen, commuters, small businesses, farmers and everyone else now are being screwed by the rise in fuel prices for diesel and petrol”.

He called for measures to relieve the burden, claiming the Government was making a real “windfall” in fuel price increases because it “takes one cent for every increase of five cents”, and had an intake of €64 million extra in VAT.

But Mr Cowen insisted he could not “cut tax in any area without jeopardising funding for essential services”. He reiterated that the exchequer yield from excise did not increase as the price of fuel rose, and while the VAT yield increased, overall VAT receipts were falling.

He also repeated that “there will be little or no net gain to the exchequer” because “spending in the economy is reallocated to petrol, diesel and other oil products, and away from other VAT-liable spending” and the “overall level of economic activity is reduced by higher oil prices”.

He added that “businesses are entitled to reclaim VAT incurred on their business inputs, including VAT incurred on fuel. VAT incurred on auto diesel, for example, on marked gas fuel used in the course of business, is a deductible credit for business in the Irish VAT system.”

Mr Kenny said the Government could use its €64 million extra in VAT yield to provide relief to consumers and businesses.

Mr Cowen insisted, however, that there was no “windfall” for the Government. “If people have a set disposable income, while they must pay more of that on petrol than before, they still have only the same income to spend.”