The temporary reduction in excise duties announced on Wednesday is just the first of many steps which the Government will have to take to respond to the economic impact of war in the Ukraine.
Of course what happens next depends on the course of the war , but steps to offer more protection to less well-off households – beyond those already announced – may be needed, as well as supports to businesses.
Just as well, in the short term, that Ministers Paschal Donohoe and Michael McGrath built significant leeway into the budget sums for 2022, between money set aside largely to deal with Covid and cautious revenue estimates. For now they will hope that the measures being taken can be dealt with without throwing the public finances off course.
A higher VAT take may well fund excise cuts in the short term. But unprecedented uncertainty makes the outlook impossible to call.
The options the Government has are limited. The European Commission has suggested that emergency tax could be levied on energy producers, but the only indigenous source of supply here is the Corrib field.
Energy supply companies here will get extra revenue, but also face extra costs. EU leaders, meeting on Thursday and Friday, may discuss VAT measures which could give Ireland more flexibility in this area, though at a cost to the exchequer.
The impact of higher fuel prices is similar to the imposition of an additional tax on the economy, sucking money out and damaging household and business finances.
The Government can only go so far in mitigating the damage. And it also faces big longer-term questions in safeguarding Ireland’s energy supply in the years ahead, now crucially dependent on gas links to the UK and facing an uncertain market outlook with the risk of shortages.
Markets were betting on Wednesday that EU leaders would announce a significant economic rescue plan and this helped boost equities. Oil and gas prices fell later in the day, partly due to reports that Ukraine might compromise on some demands in talks with Russia.
What this might mean remains unclear, but markets are grabbing on to every bit of information with no real sense of where the price for oil and gas should now be set.
