Fuel prices at the pumps are set to rise from October 13th due to carbon tax increases in next month's budget.
Papers released by the Government's Tax Strategy Group state that a 60-litre tank of diesel will rise by €1.48 - or 2.5 cent a litre - while a 60-litre tank of petrol will go up by €1.28 - or 2.1 cent a litre.
The increases are part of the Government's commitment to increasing carbon tax to €100 per tonne by 2030, with €7.50 hikes each year to 2029 and €6.50 in 2030. The measure is seen as a cornerstone to the State's efforts to tackle climate change and decrease carbon emissions through discouraging the use of fossil fuels.
It will also see increases in the cost of other fuels, due to rise from May 1st, 2022. These include an estimated €19.40 on a 900-tank of kerosene, while the average yearly household usage of natural gas (11,000 kWh) is expected to cost about €16.95 extra after that increase kicks in on the same date.
All new revenue raised through carbon tax rate increases is ring-fenced to target social welfare and other measures that seek to prevent fuel poverty and ensure a “just transition” away from fossil fuels, according to the Group's latest papers, published on Thursday.
The Tax Strategy Group is chaired by the Department of Finance with membership comprising senior officials and political advisers from a number of civil service departments and offices. Its papers are presented for consideration by the Government ahead of the budget, but the Group has no decision-making powers.
PRSI changes
In a review of the Government's options to address an expected €4.2 billion social insurance fund deficit by the end of this year, the Group says Ireland could more than double the weekly earnings threshold for employees accessing social insurance coverage.
The paper argues that the weekly earnings threshold – the minimum someone must earn before accessing benefits under the social insurance system – should rise from €38 per week to €96.15 per week, or €5,000 per year.
It also suggests increasing rates paid by self-employed workers to the same level as a proposed single standard rate of employer social insurance contribution would also open up the remaining social insurance benefits not currently accessible to the self-employed.
In a review of the Government's Help To Buy scheme the Group says that, up to the end of July this year, the scheme has cost the exchequer €470 million in refunds to 26,744 people. “The cost of Help-to-Buy continues to grow and, based on its current trajectory, it could reach over €170 million in 2021,” the report states. “Even taking into account the significant enhancements introduced (on a temporary basis) in July 2020, this is over four times greater than the original estimated cost of the €40 million per annum for the scheme when it was first introduced.”
Help to buy
Help-to-buy allows first-time homeowners buying or building new homes to claim relief of income tax and DIRT paid over the previous four years up to a maximum of €30,000 or 10 per cent of the purchase price of the property.
The Group also considered improving tax relief for those working from home, but found that the case for enhancing reliefs is weak from an economic point of view.
Enhancements would not have any significant effect on encouraging more employees to avail of remote working, should they be offered it by their employer, it argues. Bespoke tax credits, while attractive for remote workers, cost the State approximately €25 million for every €50 of tax credit provided, making it costly, the Group found. Enhancing the current tax arrangement meanwhile, which allows for relief on utilities, would be cheaper it but would not necessarily go down well with workers, most of whom would prefer an “across the board” credit.
The Group also state that a proposal of a €50 increase to PAYE and earned income tax credits, which would cost the exchequer an estimated €85 million, "could be problematic as not everyone can avail of remote working".
Electric cars
The group's papers also discuss changes to Vehicle Registration Taxes (VRT) and tax relief for electric vehicles.
The current VRT relief of up to €5,000 on electric vehicles is due to expire at the end of 2021. However, the Government advisory group has called for these to be extended beyond this deadline while the current threshold of €40,000 should be reduced to €30,000 from next year.
Currently, the €5,000 VRT relief on electric vehicles begins to taper off from €40,000, ending at €50,000. Under the new proposals, it would mean that a new electric car priced at €30,000 would receive the full €5,000 relief, but new or imported cars priced at €40,000 or more would not benefit from the tax relief.
Tax
The group’s paper on climate action and tax, also discusses wider changes to the VRT system, with increases of between 2 and 5 per cent in rates for vehicles with emissions over 101g/km, leading to a top rate of 42 per cent on cars emitting 191gCO2/km and above.
The paper also states that “the gradual phasing out of fossil fuel subsidies like the diesel rebate scheme – introduced to support the haulage and passenger transport sectors – is necessary in the transition to a more sustainable future".
Among its other recommendations, the paper suggests there may be scope for adding emissions-based criteria to VRT rates for commercial vehicles “that provides an environmental rationale and ties the system to the policy of polluter pays”.
Employees
Addressing benefit-in-kind (BIK) charges for employees, the paper says that consideration might be given to amendments to the new BIK rates due to commence in 2023.
It suggests weighting the rates more heavily towards discounting and surcharging based on a car’s emissions profile in order to encourage the take-up of electric vehicles.
On the zero BIK rate on electric vehicles, while the Department of Transport supports an extension of this rate for three more years, the group proposes that any extension could be coupled with a down-scaling of the threshold. It suggests, for example, dropping it to €40,000 for the first year, €30,000 for the second year and €20,000 for the third year, before it expires at the end of 2025.
