Cutting fuel taxes is not the answer

UNLIKE Donal Fellows (Letters, July 19), I do not believe that fuel costs can be controlled by governments. Firstly, oil is a freely traded commodity, and in Ireland, which is a free market economy, it is imported, thus removing any control in cost that is possible by the State.

The cost of a barrel of crude oil has increased from $20 in 2002 to approximately $80 this year. Such dramatic rises mean that any impact a government might have is greatly reduced.

Mr Fellows points out that the Government currently charges VAT and excise duties on imported fuel, and while a reduction in the rate of excise duty would result in a price drop at the petrol pumps, such a reduction would have a reduced effect because oil prices are expected to reach $100 a barrel by the end of this decade.

I believe a reduction in the excise duty would actually have a more negative effect. Not only would it damage the economy by resulting in a reduction of tax receipts, it would also fail to reduce demand as it would maintain an artificially low oil price.

Mr Fellows implies that cutting excise duty on oil would reduce the rate of inflation. I believe this misunderstands the impact oil prices have on the inflation rate.

Recent inflation rises have been blamed largely on rising energy costs, mainly the cost of a barrel of oil.

However, these rises have been due mainly to the increased costs industry has had to endure from importing and exporting goods, and the rise in prices which has been passed on to consumers. This effect is especially pronounced for an island such as Ireland.

The sale of fuel at the pumps has an effect on inflation, but not to the same degree as industrial trade.

Tackling inflation by reducing the rate of excise duty on oils would be false logic that could easily have the opposite effect in the longer term.

Timothy Howard

Cannon Lane

Pinner

London