Fuel tax reduction costs exchequer more than €1bn

Cuts introduced to the pump price of petrol and diesel last year have left a hole of more than €1 billion in exchequer funds.

The State benefits lucratively from tax on fuels but with an ever-mounting cost-of-living crisis and price hikes brought about by the war in Ukraine, it was forced to slice its share of the spoils last year in an effort to keep costs down for average consumers.

However, those cuts are to be gradually reversed from June and will ultimately deliver a fresh annual injection of hundreds of millions of euro into the tax net.

Recent estimates supplied to Carol Nolan, Independent TD for Laois-Offaly, by Minister for Finance Michael McGrath, show a full restoration of taxation on both petrol and diesel would result in a tax take of €709 million per year.

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In Ireland, excise is applied in the form of mineral oil tax (MOT) to liquid fuels with both a carbon tax and non-carbon component.

[ Cost of filling a car may jump by €10 overnight if excise cut reversed ]

In March 2022, under pressure to help consumers at the pump, the Government introduced VAT-inclusive reductions in the non-carbon element of petrol, diesel and home heating oil.

At the time, then minister for finance Paschal Donohoe estimated the cuts would reduce the cost of filling a 60-litre tank by €12 for petrol and €9 for diesel.

The following month, a further 1 cent reduction was applied to diesel and petrol in a bid to offset the anticipated hike in prices arising from an increase in the biofuel obligation rate, while heating oil saw a further 3.4 per cent reduction in May.

Cumulatively, the overall reductions peaked at 21, 16 and 5.4 cent per litre on petrol, diesel and heating oil respectively.

While initially the tax cuts were to last until the end of August, they were later extended to mid-October, then to the end of last February and again to the end of May.

At that point, however, a phased return to previous rates will take effect over three stages across June, September and October.

[ Petrol prices steady in recent weeks, but hikes are looming, AA warns ]

“The cost of these reductions since March 2022 is estimated at over €1 billion in terms of revenue foregone,” a spokeswoman at the Department of Finance said, outlining the cost to the public purse of cheaper driving.

In January, indicating a reversal to the excise cuts, Minister for the Environment Eamon Ryan said the Government would have to “wean” people off cost-of-living supports and with a relatively steady oil price. “We do have to look at restoring our tax base,” he said.

In Budget 2023, the Government also decided to reduce the National Oil Reserves Agency levy used to purchase and maintain oil stocks, from 2 cent per litre to a nominal amount of 0.1 cent. This measure expired at the end of February, resulting in an increase of approximately 2.3 cent per litre for diesel and petrol.