IF THE PRICE of petrol or diesel hits €2 the Government may have no choice but to step in, senior sources have suggested. 

The price of petrol and diesel has climbed to its highest level in decades, heaping pressure on households and businesses that are struggling with the cost-of-living.

A car fuel price analysis carried out by the AA Ireland at the end of January noted that pump prices have reached their highest point since the company started its surveys in 1991.

With conflict escalating in Ukraine, and sanctions imposed on Russia, the Taoiseach has warned that energy costs are likely to rise because of the amount of fuel sourced from the country.

The Journal understands that there are concerns about the mounting price hikes, and while the Government has been reluctant to tinker with VAT and excise duty, it may well be warranted if fuel costs continue to spiral. 

When asked about contingency plans being put in place to deal with the rising costs of petrol and diesel, Foreign Affairs Minister Simon Coveney said the sanctions imposed on Russia will impact on fuel and energy prices.

“The European Union at the moment is looking at how we respond to that, whether we can give countries the flexibility to be able to do things that normally wouldn’t be possible at all, in terms of responding to that, to try to manage that fuel inflation or energy cost increases in the short term,” he said.

“But there’s nothing specific being proposed yet.” 

Cabinet was today updated on the view within the European Commission that “these are extraordinary times”, Coveney added.

‘Extraordinary flexibilities’ 

The minister also said the Government would have to ensure that there are “extraordinary flexibilities” available to EU member states to protect their own citizens’ well-being.

“I think that’s a story that will develop over time. We haven’t seen that massive spike in energy costs yet. And we’ll have to wait and see how that develops in the coming days,” he said. 

The provisional receipts for motor diesel and petrol in 2021 are €1,441 million and €445 million respectively. 

With petrol prices approaching €1.90 in some service stations, sources have said the Government is keeping a close eye on possible spikes.

AA figures show that about 60% of pump prices are due to tax, including VAT and carbon tax.

“I think if prices do go that high we might have to do something,” said one source when asked about what action would be taken if prices at the pumps hit the €2 mark.

While they indicated that the Green Party would not like such a move, it was also suggested that the Finance Minister Paschal Donohoe would also not be keen on any changes in taxation before the Budget. 

Coveney told reporters today that the package announced some weeks ago to deal with inflation was “significant” and worth hundreds of millions of Euro. 

He acknowledged that it doesn’t solve the problem for everybody, but said it’s about trying to help families to cope with the short-term increase in the price of fuel and energy. 

“The position of government is that is that we will look at this again in a comprehensive way in the context of the budget,” he added. 

VAT

The Taoiseach has continually maintained that European Union rules prevent Ireland from from cutting the VAT rate on fuel to zero. 

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Sinn Féin leader Mary Lou McDonald had previously called for a three-month temporary reduction to VAT on fuel.

VAT is charged at 13.5 per cent, the Taoiseach explained in the Dáil last year, stating that under the rules it cannot go below 12 per cent.

Any temporary non-application of VAT would result in Ireland losing its derogation, resulting in the rate having to return to the standard rate of 23 per cent even if the European Commission approved it, he said.

However, Coveney would not be drawn today on whether the “flexibilities” he was speaking about referred to VAT. 

The price at the pumps has been raised by politicians in Leinster House in recent weeks, with Tipperary TD Mattie McGrath stating that “a perfect storm” has blown up around the crisis relating to the price of oil.

He said last week that there are real concerns that diesel could go to €2.25 a litre and petrol to €2.40, and called for a mini-budget before October to reduce the excise duty on petrol, which is currently 62.77 cent per litre and 51.9 cent per litre on diesel.

He called for a reduction of at least 50% from now until the end of 2022, stating that this alone would save approximately €18 on a €100 fill of petrol or diesel for the regular motorist.

He also called for a reduction on VAT on all motor fuels, electricity and home heating oil to below 5% until the end of 2022.

“People cannot go on; they cannot continue indefinitely… the price will shortly be more than €2 per litre. The Government will have to do something,” he said.