The government cuts excise duties
The government has finally passed the decree worth 4.4 billion euros which should help to counter the increase in the cost of fuel, and in general the increased cost of energy; thanks to this initiative, the government aims to help families and companies feel less the weight of the crazy price increases of recent weeks. The decree will intervene on excise duties, which will be cut by 25 cents per liter but only until the end of April: this decision was made to see how the market behaves in the coming days and weeks, and if needed. it will be very simple to extend the duration of the decree.The end of April will be the moment in which the Government will have to decide how to behave, not only with regard to fuel but also to a whole series of situations that have arisen complicated following the outbreak of the war in Ukraine: in addition to the increase in the cost of energy, gas and electricity, targeted support is foreseen for the trucking, agriculture, fishing and tourism sectors.
It is clear that 25 cents are better than 8.5, but it would still be an inadequate and insufficient drop. In recent days we had asked for double, at least 50 cents. In practice, even counting the VAT at 22%, the prices would reduce by about 30 cents, 30.5 cents, that is, taking the latest official data from the Mite, according to which self-service petrol is sold on average at € 2.185 per liter and diesel fuel at € 2.155 per liter, fuels would drop both below the € 2 threshold and below the € 1.9 threshold, but would not even return to pre-conflict levels, to pre-war values. Petrol, in fact, with the reduction of excise duties would reach 1.88 euros (it was 1.869 in the weekly survey of 28/02/2022) and diesel would even amount to 1.85 euros (it was 1.740 euros on 28/2). For the served, of course, it would be even worse.
Cut in excise duties the first of many steps which the Government will have to take
The temporary reduction in excise duties announced on Wednesday is just the first of many steps which the Government will have to take to respond to the economic impact of war in the Ukraine.
Of course what happens next depends on the course of the war , but steps to offer more protection to less well-off households – beyond those already announced – may be needed, as well as supports to businesses.
Just as well, in the short term, that Ministers Paschal Donohoe and Michael McGrath built significant leeway into the budget sums for 2022, between money set aside largely to deal with Covid and cautious revenue estimates. For now they will hope that the measures being taken can be dealt with without throwing the public finances off course.
A higher VAT take may well fund excise cuts in the short term. But unprecedented uncertainty makes the outlook impossible to call.
The options the Government has are limited. The European Commission has suggested that emergency tax could be levied on energy producers, but the only indigenous source of supply here is the Corrib field.
Energy supply companies here will get extra revenue, but also face extra costs. EU leaders, meeting on Thursday and Friday, may discuss VAT measures which could give Ireland more flexibility in this area, though at a cost to the exchequer.
The impact of higher fuel prices is similar to the imposition of an additional tax on the economy, sucking money out and damaging household and business finances.
The Government can only go so far in mitigating the damage. And it also faces big longer-term questions in safeguarding Ireland’s energy supply in the years ahead, now crucially dependent on gas links to the UK and facing an uncertain market outlook with the risk of shortages.
Markets were betting on Wednesday that EU leaders would announce a significant economic rescue plan and this helped boost equities. Oil and gas prices fell later in the day, partly due to reports that Ukraine might compromise on some demands in talks with Russia.
What this might mean remains unclear, but markets are grabbing on to every bit of information with no real sense of where the price for oil and gas should now be set.