A CARBON tax of about 8 cent per litre on petrol and diesel will be imposed in December’s budget if a key recommendation of today’s final report by the Commission on Taxation is adopted by Government.
The report by the 17-member commission, chaired by former head of the Revenue Commissioners Frank Daly, will be published this morning.
The 600-page document contains more than 250 recommendations. They include: the introduction of a revenue-neutral carbon tax; a new property tax; a new higher marginal rate of income tax; tough new rules for tax exiles; and the abolition of the PRSI ceiling as part of a wider reform of the tax model that incorporates the new income levies.
The recommendation on a carbon tax is likely to be one of the first to be implemented by Government. Minister for Finance Brian Lenihan gave a commitment to the Green Party at the time of the last budget that such a levy would form part of the forthcoming budget in December.
The commission will recommend a carbon tax on fossil fuels of €20 per tonne this morning. It will say that this measure will raise €480 million for the exchequer in 2010, rising to an estimated €500 million by 2012.
The increase in tax-take would be compensated by reduction in other areas in order to fulfil the commission’s terms of reference that the measure be revenue neutral. The pricing mechanism for the levy is contingent on a number of factors, one of which is the price for which carbon is trading on the European Unions Emissions Trading Scheme.
In a 2007 consultation paper on carbon energy tax in Ireland, the Department of Finance calculated a €20 per tonne carbon tax would result in a 7.4 cent increase in the cost of motor fuels, a 52 cent increase in the cost of a bale of peat briquettes and an increase of €2.38 in the cost of a 40kg bag of coal (or a rise of almost €60 for a tonne of coal). The report also concludes that the tax should be collected at the earliest possible point and should be linked to the existing mineral tax on oil. The report will also say that the new tax should be readily identifiable to consumers as a carbon levy.
It will also suggest a debate on the abolition of the PRSI ceiling, with some reservation that it could have an adverse effect on Ireland’s competitiveness.
The commission has decided that it be abolished but on a phased basis, so as to mitigate the effect on employment. The change in system will result in an additional €150 million in a full year to the exchequer.
New tests should also be introduced to counter what have been perceived as relaxed rules pertaining to the State’s estimated 6,500 tax exiles. These include measures to determine where an individual has a permanent home, as well as examining his or her “vital interests”.
The report will also include a copy of the letter sent by Brendan Hayes of Siptu, the only member of the commission who did not sign the report, which states that the terms of the commission posed difficulties for him in that it reinforced the low-tax model rather than moving towards developing a fair and sustainable system of tax.
