The Government has just a few short weeks to decide whether to proceed with its plans to taper the excise cuts on petrol and diesel introduced in March and April on foot of the sharp jump in oil prices following US and Israeli attacks on Iran and the ensuing public fuel protests.
The Government’s problem is that, although oil prices have come off their highs as the intensity of the conflict subsides, the absence of any clear path to a complete end of hostilities means they will likely remain elevated through to the end of the year.
As a result, the Government once again finds itself attempting to balance the political imperative to provide some sort of financial relief to fuel buyers and the economic and environmental arguments against its chosen approach of blanket cuts in excise duty.
It is common thinking in economic circles that this approach is less effective and more expensive than targeted measures. The problem is that options are very limited when it comes to targeted measures on motor fuel. Restricting the subsidies to certain sectors or vehicles is almost impossible. Likewise targeted refunds will have a delayed impact.
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The environmental arguments are equally well ventilated, and cutting excise duties is contrary to the aims of the climate action plan. But pushing people to alternative modes of transport is just as difficult, not least because of the State’s under-development of our public transport infrastructure.
A possible third course would be a universal payment to vehicle owners, somewhat along the lines of the electricity credits brought in after energy prices spiked when Russia attacked Ukraine in 2022.
Economists have little time for this approach either. The continuation of a direct subsidy via excise reduction remains the path of least resistance.
The tapering process is due to kick in at the start of the next month when 9 cent will be added back to the price of petrol in the form of excise and 10 cent to diesel. With diesel and petrol averaging €1.92 and €1.84 per litre respectively, the increases will bring prices perilously close to the €2 per litre that is seen to be politically unsustainable. A rerun of the fuel protests that precipitated the cuts remains a potent threat and is not something the Government is in any hurry to see repeated.
A second increase of 8 cent for both fuels is due at the start of October. Without some dramatic fall in oil prices, that is almost certain to push pump prices for both fuels over €2 per litre just before next year’s budget.
It would seem to be a case of when, not if, the Government either pauses the reductions or reverses them.
