'Everyone will benefit' from VAT cuts in gas and electricity

Tánaiste Leo Varadkar says a 0% VAT rate is not possible but that a cut from 13.5% to 9% should help to ease the cost of living burden

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 Tánaiste says “everyone will benefit” from new cuts to VAT on gas and electricity.

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.

Government is to bring forward measures that will see VAT on gas and electricity drop from 13.5% to 9% to offset an increase in the carbon tax that kicks in on May 1.

Package

“We put together a package that will offset that, in fact, a little more than offset and it'll be both universal and targeted,” Leo Varadkar said on Tuesday.

“Everyone will benefit from the package but there will also be a targeted measure to make sure that those lowest incomes. Those low, single-income families get a little bit more and we'll have the detail of that agreed to cabinet tomorrow.” 

The Government has set aside about €2bn to help people with the rising cost of living so far, which the Government says driven by factors that are international and beyond their control.

“We can't fully compensate people for the rising cost of living, but we can do a lot and we can do more.” 

European law

A proposal to reduce the VAT rate to 0% is not possible, according to the Tánaiste, and would be contrary to European law.

“The European Commission is very clear on that. It's a promise Sinn Féin is making that they could never honour and that is absolutely clear.

“However, we have secured some flexibility in relation to the VAT on energy on electricity and gas.

“If we reduce that rate on gas and electricity down to a lower rate, once we reverse that, we'd have to go up to 23% because we already have discretionary lower rate of VAT on energy in Ireland. So the concern we had, is that we would reduce it by a few points now and then in six months or a year's time have to go up to 23% and we've never had that on energy in Ireland.

“So changes that are being made to the VAT directive we do have some flexibility around that on gas electricity, but not on petrol or diesel.” 

The Tánaiste added there would be no “clawback” later in the year to make up for lost VAT.

A temporary reduction on electricity and gas allows the state to go back to the 13.5% rate, which is the current discretionary rate.