Cut to VAT and lump sum fuel payment to help with cost-of-living crisis
Consumers have seen large rises in their energy bills this year.
The Government is to cut VAT on gas and electricity and provide a lump sum payment to those on the fuel allowance as part of a new cost-of-living package.
The three Coalition leaders met with Finance Minister Paschal Donohoe and Public Expenditure Minister Michael McGrath on Monday night to finalise a range of options to tackle soaring inflation and fuel bills.
Mr Donohoe brought forward measures that will see VAT on gas and electricity drop from 13.5% to 9%.
It is understood the Government has secured an agreement from the European Commission for this temporary measure which will see €49 shaved off the average gas bill and an average reduction of €61 on electricity bills each year.
The measure will require an amendment to the Finance Act, and ministers will be presented with a number of costings based on how long the lower rate is retained when they meet tomorrow.
It is understood that keeping the lower tax rate until the end of the year would result in a €73m reduction in VAT returns for the exchequer.
Social Protection Minister Heather Humphreys is also expected to bring a proposal to Cabinet this week to provide a three-week lump sum for those in receipt of fuel allowance.
This would amount to €99, with the intention of giving it out in the coming weeks.
The measure will benefit 377,000 people on lower incomes and will cost more than €40m.
Government sources last night stressed that the fuel allowance intervention will offset the carbon tax increase, due to be introduced in May, for struggling lower-income households.
The increase in carbon tax will amount to rises of around €1.40 a month on the average gas bill and €1.50 a month on home heating oil.
The latest measures come amid backbench rumblings from Fianna Fáil and Fine Gael members about the proposed increase on carbon tax, which has heaped pressure on Taoiseach Micheál Martin and Tánaiste Leo Varadkar.
Mr Martin had already indicated that, unlike the €200 rebate for everyone on energy bills, any further changes made would have to be "targeted" at those most in need.
Meanwhile, the Public Service Obligation (PSO) levy, which is charged to all electricity customers in Ireland and supports the generation of electricity from sustainable, renewable, and indigenous sources, will also be scrapped from October.
This will be contained in a separate energy framework memo, due to be brought to Cabinet by Environment Minister Eamon Ryan on Wednesday.
Government sources said the proliferation of renewables, and their reduced cost, has minimised the need for the levy. Elimination of the levy will save billpayers around €58 a year.
Under Mr Ryan's proposals, the use of smart meters will be encouraged, and the Government will also be encouraging people to use electricity at a time of day when the tariff is cheaper.
The European Commission is due to come back with a broader range of measures next month that would assist member states in easing the burden of rising costs.
This could include joint procurement of gas, which would bring down prices across Europe.
However, a source last night said there will be no further "wriggle room" coming from Europe on VAT.
Separately, discussions on the Labour Employer Economic Forum will be held on Wednesday as the Government aims to reach an agreement on inflationary measures with social partners.
"We will look at all the issues in the round, pay pressure, taxation and what the Government might do in that space, social protection and welfare changes in the budget, to see if we can come to any broad consensus as to how Ireland gets through the coming months, which will be challenging," said a Government source.
CONNECT WITH US TODAY
Be the first to know the latest news and updates
