News Irish News

Monday 16 September 2019

Families 'should get carbon tax paid back in lump sums'

Finance Minister Paschal Donohoe. Photo: Steve Humphreys
Finance Minister Paschal Donohoe. Photo: Steve Humphreys

Hugh O'Connell and Kevin Doyle

Families with low incomes should get their carbon tax repaid in "lump sums", a leading expert has suggested.

Tax on home-heating and motor fuel will increase dramatically over the next decade - but the Government is probing ways of offsetting the impact for those on lower incomes.

Finance Minister Paschal Donohoe has not ruled out using some of the funds raised to help establish a car scrappage scheme.

Carbon tax is currently paid at a rate of €20 per tonne but the Government's new Climate Action Plan commits to hiking this to €80 by 2030.

It is expected Mr Donohoe will begin a gradual process of hikes in the next Budget which Cabinet decided yesterday should be held on October 8.

The minister pulled back from raising carbon tax in the days before Budget 2019, citing Brexit as one reason. However, Government sources widely reported that the move was largely driven by concerns about a rural backlash.

Since then, officials have begun work on an options paper for how the controversial tax can be increased.

It is understood the Government wants to ring-fence extra income from carbon tax and give the money back to people in the form of a fuel allowance or increased tax credits.

A €10 increase in carbon tax in the Budget will raise more than €200m in extra revenue next year with additional increases over the next decade generating over €2.1bn in 2030, the Oireachtas Budgetary Oversight Committee heard yesterday.

The ESRI has now said that giving families on lower incomes a lump sum payment would be the most effective way of offsetting the impact.

Senior research officer Kelly de Bruin told TDs the lump sum transfer would be more effective in offsetting the regressive nature of the tax than redistributing the tax take in welfare payments.

"In terms of real disposable income, a lump-sum transfer will significantly decrease the regressive trend of the tax," Ms de Bruin said. "Applying a social welfare-based transfer, we find to a lesser degree a decrease in regressiveness."

In both instances the negative impact of the tax on economic growth would be halved by redistributing revenues to households rather than using it to pay down Government debt. Professor John FitzGerald, the chair of the Government's Climate Change Advisory Committee, said a "substantial" part of the carbon tax revenue should be used to ensure people on low incomes are not worse off.

He said it was "almost impossible to deliver emission reductions without a carbon tax".

He said the rate charged per tonne of carbon emitted "needs to be between €30 and €80 per tonne to make it worthwhile" and recommended an increase to at least €35 per tonne in October's Budget rising to at least €80 by 2030.

Mr Donohoe has refused to give any sense of his thinking on what type of increase may be introduced next year. He is awaiting a tax strategy paper, which is likely to be completed next month.

"The commitment in the Climate Action Plan is €80 by 2030. It is on a budget-by-budget basis.

"There will be areas of change that will have an effect on the prices our citizens pay but they are going to vary citizen by citizen, family by family," the minister said.

A €10 increase in the carbon tax to €30 per tonne would add around 3c to the price of a litre of petrol and diesel increase when Vat is included; a bale of briquettes would be 26c dearer and a 40kg bag of coal would rise by almost 40c.

Asked whether funds from the carbon tax could be used to start a car scrappage scheme, Mr Donohoe replied: "You're many steps ahead as to what's going to be in the Budget day. In the climate change plan, it recognises that within Ireland 2040 there is just over €30bn committed to supporting that plan.

"Any further decision will be in light of Budget 2020."

Mr Donohoe will publish the summer economic statement next week as he plans for the coming Budget. He is taking an unusual approach this year by preparing two budgets - one based on a soft Brexit, the other on a crash-out scenario. He will have to decide which to implement three weeks before the October 31 deadline.

Irish Independent

Editor's Choice

Also in Irish News