As forecourt prices rise, can Govt hike fuel taxes?

Oil prices are now more than 50% higher than they were in July when the prospect of a resolution to the Iran conflict did not seem as distant as it does today.

Many expected the White House would broker a deal well ahead of the US midterm elections.

But now even US President Donald Trump concedes there is no chance of that, and the cost of a barrel has remained above $100 (€86.57) for a week.

The elevated price, which is feeding through to the pumps in Ireland and elsewhere, presents a series of difficulties for the Irish Government.

Diesel is above the €2 per litre threshold in many service stations with petrol not far behind.

But there are a range of taxes on fuels which are due to be reinstated after they were temporarily cut earlier this year.

Top of the list are relatively significant hikes facing motorists.

The Coalition’s current plan is to increase tax on petrol by 27 cent per litre and diesel by 32 cent per litre.

The rises would be introduced over four dates: 1 November, 1 December, 31 January and 28 February.

These increases were due to be introduced from 1 September, but the Coalition paused the rises for two months.

However, tax reductions affect the Government’s coffers and have implications for the Budget which is due to be announced on 6 October.

Last month the Government said, “The estimated cost of the temporary excise reductions on fuels from 1 September until the end of the phased restoration on 28 February 2027 is €407m.”

Another issue is that the Carbon Tax is due to increase on 14 October and will push up prices for coal, peat and natural gas.

That rise has been postponed since May.

The money from the tax is ringfenced for tackling energy poverty and retrofitting homes.

So, if the increase is paused again, the Government will have to find the money for those projects from somewhere else.

The Cabinet also temporarily removed a levy of 2 cent per litre on petrol and diesel which pays for the National Oil Reserve Agency. That is also due to revert on 1 November.

Sources in Government Buildings said ministers will be “agile” when it comes to responding to higher oil prices.

The reality is that the Government faces a series of difficult decisions in the weeks ahead.

If oil prices remain at these elevated levels, it will become a political nightmare for the Coalition to push ahead with increases in taxes on fuel.

Few will be surprised if they are stalled again.