Cut VAT and fuel lump sum payment to help tackle cost of living crisis
The government must reduce VAT on gas and electricity and make a lump sum payment to those on the fuel allowance under a new cost-of-living package.
The three Coalition leaders met with Finance Minister Paschal Donohoe and Public Expenditure Minister Michael McGrath on Monday evening to finalize a series of options to tackle soaring inflation and fuel bills.
Mr. Donohoe presented measures that will reduce the VAT on gas and electricity from 13.5% to 9%.
It is understood that the government has obtained an agreement from the European Commission for this temporary measure which will result in a reduction of €49 on the average gas bill and an average reduction of €61 on electricity bills each year.
The measure will require an amendment to the finance law, and ministers will be presented with a number of costs depending on how long the lower rate is maintained when they meet tomorrow.
It is understood that maintaining the lower tax rate until the end of the year would lead to a reduction of 73 million euros in VAT returns for the Treasury.
Welfare Minister Heather Humphreys is also expected to present a proposal to Cabinet this week to provide a three-week lump sum to people on fuel allowance.
It would cost €99, with the intention of distributing it in the coming weeks.
The measure will benefit 377,000 people with low incomes and will cost more than 40 million euros.
Government sources last night pointed out that the fuel allowance intervention will offset the carbon tax increase, due to be introduced in May, for struggling low-income households.
The increase in the carbon tax will result in increases of approximately €1.40 per month on the average gas bill and €1.50 per month on heating oil.
The latest moves come amid backbench rumors from Fianna Fáil and Fine Gael members over the proposed carbon tax hike, which has pressured Taoiseach Micheál Martin and Tánaiste Leo Varadkar.
Mr Martin had previously indicated that, unlike the €200 for all rebate on energy bills, any new changes made would have to be ‘targeted’ to those who need it most.
Meanwhile, the Public Service Obligation (PSO) tax, which is charged to all electricity customers in Ireland and supports the generation of electricity from sustainable, renewable and indigenous sources, will also be scrapped. starting at October.
This will be contained in a separate energy framework memo, due to be presented to Cabinet by Environment Minister Eamon Ryan on Wednesday.
Government sources said the proliferation of renewable energy and its reduced cost has minimized the need for the tax. Removing the tax will save payers around €58 per year.
Under Mr Ryan’s proposals, the use of smart meters will be encouraged and the government will also encourage people to use electricity at a time of day when the tariff is cheaper.
The European Commission is expected to return next month with a wider range of measures that would help member states ease the burden of rising costs.
This could include the joint supply of gas, which would lower prices across Europe.
However, a source said last night there would be no more ‘wiggle room’ from Europe on VAT.
Separately, talks on the Labor Employers’ Economic Forum will be held on Wednesday as the government aims to reach an agreement on inflationary measures with social partners.
“We will look at all the issues in the cycle, wage pressure, taxation and what the government could do in this space, social protection and welfare changes in the budget, to see if we can reach a broad consensus on how Ireland is getting in the coming months, which will be difficult,” a government source said.