Donohoe rules out VAT cut despite soaring energy bills

The Minister for Finance has ruled out cutting VAT on energy to deal with a spike in fuel prices, saying a €100 energy credit is the “priority”.

At an event on Friday, Paschal Donohoe said reforming income tax could also help tackle the rising cost of living.

“The energy credit is a far more effective way of dealing with the cost of energy than our VAT code because we are already taxing at a low rate of VAT,” Mr Donohoe told an event organised by accounting body CPA Ireland on Friday.

Mr Donohoe’s comments come as the Government mulls plans to reduce the cost of energy, healthcare and education, including a possible rise in the €100 energy credit, which is due to be taken off electricity bills in March.

The Irish Independent reported today that under plans being suggested by senior government figures, the credit could be almost doubled to €200.

The news comes after prices rose to a 21-year high of 5.7pc in December, falling slightly to 5pc in January, according to Eurostat.

Mr Donohoe said inflation is “clearly an issue” but that its causes are outside government control.

“We are looking to see, are there additional measures that we can put in place that will help, in particular, our consumers, our citizens, with the cost of living they’re facing.

“And the main priority that we have at the moment is the implementation of the energy credit which we’re aiming to bring in in March.”

The Consumers Association of Ireland (CAI) has called for an urgent cut to the 13.5pc VAT rate on electricity, gas and home heating oil to at least 9pc, the temporary pandemic rate for hospitality services.

CAI chair Michael Kilcoyne said the government should also bring in a country-wide rent cap and lower excise duties on petrol and diesel to help residents in rural areas.

“When the costs of petrol and diesel go up everything else goes up as well,” said Mr Kilcoyne. “This is a cash earner for government.”

EU rules allow for VAT rates as low as 5pc and 12pc for certain products, although the number of reduced rates per country is limited to two.

Mr Donohoe said Ireland’s VAT rate is already lower than most of our EU peers, which charge the standard 23pc rate.

Irish electricity prices are the fourth highest in the EU, at around 23pc above average, according to price comparison site bonkers.ie, with gas prices around the seventh most expensive.

Mr Donohoe on Friday said his priority was to lower the number of people paying higher rates of income tax.

“Year by year, we have every ability to be able to increase the point at which you pay the higher rate of income tax and allow, in particular, lower and middle income earners to keep more of their income at the lower rate of income tax, and that’s my key priority.

“If you have a look at what is happening with inflation, the cost of living, with incomes going up as well, the importance of it is very, very clear.”