The Government was correct to wait a few weeks into the conflict in the Gulf before committing to measures to support households and hauliers. However, it will know that the outlook is still uncertain and that it may need to do more later in the year. This is, in effect, a holding operation.
The key measures are a mix of targeted interventions and more general measures, including a cut in fuel excise duty. The extension of the fuel allowance period and special assistance for various groups directly benefits those who are among the worst affected.
The reduction in excise duties – for two months – will benefit all motorists and is thus less targeted. However, as the exchequer is gaining from a higher tax take as prices rise, it is reasonable to take short-term action to lower prices at the pumps. The problem will come if wholesale prices continue to rise in the weeks ahead. The additional relief for hauliers is justified by their exposure to higher fuel prices and the risk that this feeds into general prices.
Taoiseach Micheál Martin is correct to point out that the Government cannot compensate everybody for the full impact of higher fuel prices, even if the political debate suggests otherwise. His Government now has some serious thinking to do in the weeks ahead about the appropriate strategy heading into next winter, if higher household electricity and gas bills are added to the mix.
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The cost of the first intervention is €235 million, which is a significant amount of money though not enough to upset the overall exchequer arithmetic. If the crisis continues, however, pressure will grow for more costly supports for households and businesses.
The Government will hope for an early resolution in the Gulf conflict and thus some relief on energy prices. But even if the US ends its involvement, the region is now destabilised. Some significant impact on economic growth and inflation is thus likely. This leaves the Government with fewer resources, but facing more demands.
Targeting help where it is needed is the challenge, if the crisis worsens, and the Government needs to engage in serious work on this issue. As well as temporary measures, a Government task force has been looking at the structure of the market and examining important issues, such as the costs added to bills in Ireland, how poorer households are supported and how prices are set. This needs to be set within an overall strategy of the transition to renewable energy, the case for which is again made by the latest events.
Blanket supports may have been the only feasible approach when Covid hit – and again when inflation shot up after the invasion of Ukraine. Now, the Coalition has time to plan for a variety of outcomes, develop a targeted strategy and consider longer-term approaches. It must use it wisely.
