Carbon tax ‘would leave poor with higher heat bills’

THE carbon tax favoured by junior Government partners the Green party would likely result in poorer households having to pay more for heating, a Government advisory group has acknowledged.

The Greens have consistently fought for the introduction of a carbon tax on energy sources that emit carbon dioxide such as coal, gas and peat. Consumers and businesses alike would have to pay the tax, the goal being to encourage more efficient use of energy and lower emissions.

Fianna Fáil previously considered the introduction of a carbon tax but decided against it in 2004.

But in the Programme for Government negotiated with Fianna Fáil last year, the Greens won a commitment that “appropriate fiscal instruments, including a carbon levy, will be phased in... over the lifetime” of the administration.

Rather than introduce the tax immediately, the Government put the issue on the long finger by referring the proposal for evaluation to the newly established Commission for Taxation, which is due to report next year.

In the meantime, however, carbon and other environmental taxes were discussed by the Taxation Strategy Group, a committee of officials from various Government departments which assesses Budget options.

The minutes of its meetings ahead of last December’s Budget were released by the Department of Finance last week.

In those meetings, the strategy group noted that a carbon tax would have the greatest price impact on fuel products which have only low or no excise duty currently applied to them — natural gas, coal and peat briquettes, for example.

“Many of these have a high weighting in the Consumer Price Index [which measures consumer prices] and could be expected to push up inflation in the short term,” the strategy group pointed out.

It said that, in general, environmental taxes such as a carbon levy were likely to impact hardest on poorer households.

“Such taxes are seen as potentially regressive as it is likely that a higher proportion of a low-income household’s income will be spent on energy.”

The Greens have previously argued that the money the tax generated could be used to compensate poorer households through increased social welfare payments.

The strategy group acknowledges that this is an option, and preferable to a system whereby the most vulnerable would be exempted from the tax. However, it warns that either system would be difficult to introduce.

“Compensation mechanisms are generally favoured over exemption/mitigation as they involve a lower risk of defeating the environmental purpose of the tax, however either of these options would not be easy and give rise to public expenditure and operational issues,” the strategy group stated.