Green measures will feature prominently in shaping of future budgets

The inflection point at which taxpayers' pockets are impacted by green initiatives has yet to be determined, writes Cormac Kelleher, international tax partner at Mazars in Ireland

Filling your car with 60 litres of fuel will be €1.28 or €1.48 more expensive, depending on whether you drive a petrol or diesel vehicle. Picture: Eddie O'Hare

Climate change was well flagged to feature in Budget 2022. What was unexpected, though, was the concept of “green budgeting”. 

This process seeks to consider the impact of the budgetary process on the longer-term societal choices. This new concept features heavily in the measures announced by finance minister Paschal Donohoe.

As is a budget tradition, prices at the pump rise on budget night. The rate of carbon tax will increase by €7.50 from €33.50 to €41 per tonne for auto fuels and from May 1, 2022, for all other fuels. 

In simple terms, filling your car with 60lt of fuel will be €1.28 or €1.48 more expensive, depending on whether you drive a petrol or diesel vehicle. 

This upward measure is expected to contribute €148m to the exchequer. While such an increase may not appear to be too high, it needs to be kept in mind that we are on an upward trajectory to levy a rate of €100 per tonne by 2030. That means it could cost you approximately €10 more per tank of petrol by 2030.

Following on from the overhaul of vehicle registration tax announced in Budget 2021, further changes are on the cards. From January 2022, there will be revised rates for the 20 band table.

Increases will range from 1% to 4%, depending on the vehicle emission levels. This approach is in line with the “polluter pays” principle. Exemptions for battery electric vehicles will be extended to the end of 2023. This upward measure is expected to contribute €82m to the exchequer.

Green budgeting is in action with accelerated capital allowances for energy-efficient equipment.

Allowances of up to 100% of the cost of the equipment may be claimed in year one. The regime is to prohibit equipment directly operated by fossil fuels from qualifying. 

At home, there is a continued emphasis on retrofitting and upgrading, with €202m allocated for people to improve the energy efficiency of their dwellings in 2022.

Green initiatives have not been limited solely to carbon taxation and electric vehicles. In tandem with the policy to facilitate and support remote working, an income tax deduction amounting to 30% of the cost of vouched expenses for heat, electricity, and broadband in respect of those incurred while working from home will be provided for.

Green budgeting measures will feature prominently in the shaping of future budgets.

While we have well-published plans on what carbon emissions should look like in 2030 and what our European commitments are, it will be interesting to see how satisfying these targets will interact with more traditional measures around personal taxation and excise duty /VAT.

Green initiatives are unquestionably important, but the inflection point at which taxpayers' pockets are impacted has yet to be determined.

Cormac Kelleher, international tax partner at Mazars in Ireland