The Tax Strategy Group (TSG) remains cool on the idea of continuing the deduction on carbon tax for farmers.
The TSG has meet annually since the early 1990s in advance of the national budget each year, to outline options for potential changes to the country’s tax regime.
This year’s meeting took place earlier this month in advance of Budget 2024 later in the year.
The TSG, which comprises civil servants and policy advisors from across the government departments, does not make decisions on the budget. Instead, it presents a range of papers which the Minister for Finance may take into account when preparing the national budget.
In its paper on Climate Action and Tax, published last week, the TSG expressed similar views on the carbon tax relief for farmers as those it expressed last year ahead of Budget 2023, particularly around its consistency – or apparent lack thereof – with climate policies around phasing out fossil fuel use.
Introduced by the government in 2012, the deduction aims to insulate farmers from any carbon tax increases above the rate of tax that applied in 2012 (€41.30/1,000L).
On top of the normal deduction which farmers get in respect of their input costs (including fuel), they also get a second deduction in respect of any increases in the carbon tax which are in excess of €41.30/1,000L.
In effect, the tax is paid by farmers before the deduction is claimed back.
This year’s TSG paper said: “Fossil fuel support measures such as the fuel allowance, the diesel rebate scheme, and the double tax deduction farmers provide a level of targeted support to vulnerable households and to sectors of the economy.
“However, these supports can lead to ‘fossil fuel lock in’ encouraging ongoing consumption of heavily pollutant fuels. Both national and international commitments to a future that is less reliant on fossil fuels and phasing out fossil fuels subsidies is a core step in the journey to a carbon neutral future.”
This year’s paper covering the carbon tax is somewhat less detailed on the issue of the farmer tax deduction compared to the equivalent paper released by the TSG last year in advance of Budget 2023.
In last year’s paper, the TSG noted the absence of viable alternatives to the internal combustion engine.
However, it said that the commercial transport or construction sectors are in the same predicament and cannot avail of the concession.
Last year’s TSG paper said: “On the grounds of equity, the case for a continuation of [the relief] for farmers is not a strong one.”
The TSG said last year that any change to this relief should not be made in Budget 2023, but be deferred to “a later date”, due to a range of issues, including the sharp increase in input costs for farmers.
This year’s paper does not explicitly recommend removing or altering the relief in Budget 2024. However, it does not repeat the view that any potential change should be deferred to a later date.
What is certain is that the carbon tax will increase generally by €7.50 per tonne of CO2 emitted.
This increase (which applies across the economy, including to farmers before they claim back the deduction) will result in a rate of €56/t of CO2 emitted.
The increase will apply from October 10 this year for diesel and petrol and from May 1 of next year for all other fuels.
In 2022, total tax receipts through the carbon tax equated to €791 million to the national exchequer.