Planned measures will ‘more than offset’ carbon tax increase – Varadkar

Temporary VAT reduction planned on gas and electricity but not on car fuel or heating oil

A package to be agreed by Cabinet on Wednesday will “more than offset” the cost of the increase in carbon tax that is due to kick in on May 1st, Tánaiste Leo Varadkar has said.

He said the package will be both universal and targeted so everyone will benefit, but those on lower incomes will benefit more. The planned increase in the tax, which is part of the Government strategy on climate change, will cost the average household between €1.50 and €3 a month, he said.

The Government intends to temporarily reduce the VAT rate on gas and electricity, but not on petrol, diesel or home heating oil, Mr Varadkar said. The different fuels are being treated differently because of the ways they are affected by the EU rules on VAT.

If the current discretionary rate on petrol, diesel and home heating oil of 13.5 per cent was temporarily reduced it would have to, when increased again, go to the full rate of 23 per cent and not the current discretionary rate. This is not the case with gas and electricity, because of a recent flexibility that was introduced.

A proposal from Sinn Féin to go to a zero-VAT rate was against European law, said Mr Varadkar.


Under the plans to tackle the cost of living, households will receive an additional three weeks’ payment of the fuel allowance, while the VAT on gas and electricity looks set to be temporarily cut from 13.5 per cent to 9 per cent.

A Government meeting was held on Monday evening to discuss plans to tackle increased energy costs and soaring inflation. Ministers agreed on targeted supports for those on the fuel allowance, including an additional three weeks’ payment worth €99, paid in one lump sum. This will benefit about 370,000 people.

The planned temporary reduction of VAT on gas and electricity from 13.5 per cent to 9 per cent would require domestic legislation and be worth about €49 a year on gas and €61 a year on electricity.

Overall, the Government was spending approximately €2 billion on packages designed to help people with cost-of-living increases, Mr Varadkar said while speaking to reporters in Dublin.

The Government wanted to have a balanced budget this year but the growing economy meant there was scope for helping people with cost-of-living increases.

“What we want to avoid is the fool’s paradise of using borrowed money to help people with the cost of living, and that is why we can’t go as far as maybe we would like to in an ideal world,” he said.

“If we jack up borrowing to help people with the cost of living now, we would have to take that back off people in a few years’ time, and I don’t think we would be doing anyone any favours if we did that.”

Elsewhere, the Taoiseach was asked if the Government decision to reduce the rate of VAT on heating fuels would do no more than offset increases, to which he saidthe war in Ukraine was clearly having an impact.

“I’ve been very consistent that we cannot entirely deal with our response 100 per cent to all of the increases that have happened as a result of the pandemic and as a result of war.

“What we can do is do the very best we can to alleviate pressures on people and we have done that through close to €2 billion allocation from both the budget and measures since January, on a range of fronts, as you know, not just under reduction in excise duty in that, but also in terms of reducing transport costs and public transport, reducing medicine costs, waiving the school Leaving Certificate fees and paediatric charges. So we’re trying to look at costs that affect families, and that mean something for them and their daily lives.”

Colm Keena

Colm Keena

Colm Keena is an Irish Times journalist. He was previously legal-affairs correspondent and public-affairs correspondent

Harry McGee

Harry McGee

Harry McGee is a Political Correspondent with The Irish Times