Motorists are paying a heavy price as fuel prices keep on rising

MANY people fear the monthly announcements from the European Central Bank about interest rate policy.

A hike in interest rates can add tens or, in some cases, even hundreds of euro to the monthly cost of paying a mortgage. Thankfully interest rates have remained remarkably stable — and relatively low for most, especially those on tracker mortgages — over the last couple of years. But the relief for many has been limited, especially those who need their cars to travel long distances from those houses to their places of work. The price of fuel has become a major drain on the finances of many families.

The Automobile Association (AA) has calculated that if someone was paying €142 a month for petrol or diesel in Jan 2009 that they would now be paying €300 per month for the same quantity of fuel to run their car. Back in Jan 2009 the average price on forecourts for a litre of petrol was estimated by surveys at 95 cent a litre. Since then it has gone up to anywhere between €1.60 and €1.70 (and sometimes more) depending on where people buy their fill.

People who travel long distances to and from work each day face even bigger monthly fuel charges, on top of possible tolls and parking charges, even before they take into account the cost of taxing and insuring their car, and the repayments to the bank if they’ve taken out a loan to buy their vehicle. (Those loan repayments, because they are made over a short period, can be like an extra small mortgage in themselves).

Many people are struggling as a result. Yet motorists seem to be an easy target for any government that is seeking to raise extra cash. Since Brian Lenihan’s emergency budget in 2008 there have been five tax increases that impacted on motorists. These have included raised VAT, the introduction of carbon tax and three excise duty increases. All together it is estimated that these have added 21 cent to the price of a litre of fuel. It adds up.

It has been estimated that drivers pay over 10% (or close to €4bn) of all tax revenues collected by the State. This total is reached through a combination of excise duty, VAT, and annual motor tax, as well as vehicle registration tax (VRT) when a new car is purchased (a source of revenue that very obviously has diminished greatly as new car sales have collapsed from their peak in 2008).

Not all of the increase in fuel prices can be blamed on the Government, of course. Some of the increase in prices can be attributed to the weaker euro against the dollar (the latter being the benchmark currency for trading in energy supplies) and increased oil prices themselves. But that does not absolve the government from blame. 54% of the price you pay for petrol goes to the Government and almost 50% of what you pay for diesel goes directly to the State coffers.

In Jul 2008, when oil on international markets peaked at $147, the average price of a litre of petrol in Irish forecourts cost €1.36. That is well short of what it costs today. The tax makes up the difference. Yet back then, when he was leader of the opposition, Enda Kenny asked the then government to ensure that excise duties and VAT “are not used as a further battering ram against the hard pressed consumer”.

The AA’s Conor Faughnan has expressed amazement that there has not been more fuss about it, given that the costs to motorists are a multiple of the much criticised €100 household charge introduced recently. He reckons the typical motorist spends at least €1,600 on fuel each year. He compares the rising cost of fuel to a pay cut and says that it is impacting directly on people’s ability to spend in their local economies.

Fianna Fáil has spotted an opportunity to make political mischief here, almost oblivious to the fact that essentially all of this is its fault. It wants excise duties on petrol and auto diesel to be cut by 4 cent, but the Government has said no.

It may seem like a small amount but John Perry, the Minister of State for Small Business, claimed this week that this would cost the Exchequer €178m in lost revenue in a full year. He said this loss of money “would have a negative impact on the performance of our public finances, which is vital to our economic wellbeing and to our exiting the EU-IMF programme”.

His Minister for Finance Michael Noonan waded in by accusing Fianna Fáil of living in an “economic dream land” because of the party’s call for a cut in fuel taxes.

This didn’t stop Fianna Fáil’s Timmy Dooley from warning Noonan that he “should be careful of accusing others of losing touch with reality at a time when his Government is heaping new charges upon families and is apparently clueless about the effect this is having on people”.

This is a major issue for many people in many parts of the country. Rising house prices in the last decade persuaded many people to purchase seemingly affordable houses in more remote and previously rural areas because they appeared cheap relative to prices in the main cities. Many are in negative equity as a result, living far from their original homes and now suffering additional and unexpected costs.

On radio this week Kiera Lambe told me how she and her husband Peter get up at 5.30 each morning to prepare for 32 mile trip to Dublin to make work at 8am (having dropped their four year-old child at the crèche at 7am).

THEY bought their house in Rathdrum in 2005 because it was more affordable than houses in the south Dublin suburbs of Sallynoggin or Dalkey where they had grown up. Kiera has since lost her job and found a new one, but despite the early start for their little girl she has had to arrange with her employer for an early start, simply so she and her husband can use one car instead of two. The second car now sits largely unused in the driveway. She and her husband have to fill the tank at least once a week — solely for the work/crèche drives — and it costs them about €350 per month.

Their annual spend on petrol now equates to about four monthly mortgage payments and that’s before other motoring costs are taken into account.

As I discovered from listeners after the broadcast of the interview the problem is widespread throughout the country; the Lambes story is typical. Faughnan of the AA has been told by some motorists that have, or are considering, quitting their jobs because the rising cost of fuel wipes out the benefit of going to work. The Government is apparently considering changes to the motor tax regime in the next budget to raise more money.

Just how much more can many motorists bear though? And is there an argument for reducing the burden so that hardpressed motorists have more money to spend in other areas of the economy?

* The Last Word with Matt Cooper is broadcast on 100-102 Today FM, Monday to Friday, 4.30pm to 7pm.