Introducing a new reduced Vat rate to tackle the surge in energy prices could result in some products and services moving back up to the standard 23% rate Finance Minister Paschal Donohoe has warned.
European energy prices surged to record highs in the autumn as tight gas supplies collided with high demand in economies recovering from the Covid-19 pandemic.
While gas prices have retreated from the record highs due to concerns over the spread of the Omicron variant, they remain relatively high. Most energy utilities in Ireland have introduced a series of price increases for customers in recent months. The EU has approved a 'toolbox' of economic measures that countries can use to reduce the burden of these increases which includes the temporary deferral of bills, income support or vouchers and targeted reductions in tax. Sinn Féin's finance spokesperson Pearse Doherty asked the minister for his view on using the toolbox to apply reduced Vat rates on energy products. The minister said Ireland's Vat system of a standard rate of 23% and two reduced rates of 13.5% and 9% is the maximum allowed under EU law, and Ireland already enjoys a derogation whereby energy products are 'parked ' at 13.5%. He said that if Ireland was to introduce a new reduced rate, even on a temporary basis, for the supply of natural gas, electricity, and district heating, then it would not be permissible to also continue both existing reduced rates of 9% and 13.5%. "This would mean that one of those existing rates would have to be removed and the goods and services covered by those rates would have to move either to one of the other reduced rates or to the standard rate," he said. Mr Donohoe's response comes as disagreement continues within the EU over ways to reform the energy market within the bloc. Ireland last week joined Germany, Denmark, the Netherlands, and five other countries in signing a joint statement opposing EU energy market reforms that it warned would discourage electricity trade between countries and undermine incentives to add low-cost renewable energy to the system. A second club of countries — Spain, France, Italy, Greece, and Romania want joint gas buying among EU countries to form strategic reserves, and an investigation to identify reforms to the bloc's electricity market.