Minister for Finance Michael Noonan rejected advice from civil servants and the Minister for Transport Shane Ross to raise taxes on diesel to try and help stop Irish motorists switching to diesel engines.
The “equalisation” of excise duty on diesel to bring it into line with petrol taxes would have eventually yielded an extra €328 million a year in extra revenue to the exchequer, according to one submission.
However, Mr Noonan ignored the separate requests from officials, the Department for Transport and the OECD.
In a pre-budget submission obtained under Freedom of Information, Mr Noonan was told raising taxes on diesel would help tackle climate change and would be a “prudent” move.
Prepared for the Minister by civil servants in his own department, it stated: “The main revenue-raising proposal, the equalisation of excise on petrol and diesel, has its own climate policy rationale and would help signal a shift towards lower-emission vehicles rather than continuing to drive consumers towards ever higher levels of diesel penetration across the fleet.”
It is the second consecutive year Mr Noonan has failed to act on proposals to increase excise duty on diesel.
Last year, a suggestion to increase taxes on diesel was also discarded because of pressure from road hauliers and businesses.
To take advantage of the lower rates of tax on diesel, new car buyers have been moving en masse away from petrol cars, with 70 per cent of new private cars since January of this year powered by diesel engines.
Climate change
In the latest submission, Mr Noonan was reminded that the programme for government had said climate change was “the global challenge of our generation”.
It said the interdepartmental tax strategy group had been examining options to help Ireland meet its obligations under EU 2020 climate targets and avoid severe financial penalties.
The submission suggested that the raising of excise duty on diesel to mirror that on petrol could be staggered over a five-year period.
In the first year, this would yield an extra €66 million, and by the time the process was complete would generate more than €300 million annually.
The submission explained the Minister for Transport had made his own submission where he sought “rebalancing” of tax on petrol and diesel.
Later, it went on to say: “There is a significant difference between the rates of petrol and diesel in Ireland. The resultant price difference together with VRT (vehicle registration tax) and motor tax carbon emissions-based policies have resulted in dieselisation of the private car fleet.
“The Minister for Transport and others, including the OECD, have called for an equalisation of the excise rate on petrol and diesel. It would be prudent to equalise the rates through a long lead-in process.”
Cleaner options
It said this long lead-in would allow businesses and motorists to make alternative arrangements and move towards electric vehicles or other cleaner options.
However, the advice was not taken and no move to increase rates of excise duty on diesel was taken.
In a statement, the Department of Finance said: “The Budget 2017 environmental taxes submission to the Minister outlined a number of options for raising revenue from mineral oil taxes, including the OECD recommendation around diesel equalisation.
“In the context of the tax strategy group process, a wide range of options are put forward across all tax heads. Ultimately, it is a matter for the Minister and the Government to decide on the composition of the budget, taking into account of the cumulative impact of all the taxation and spending measures introduced on the cost of doing business and on wider society.”
