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Carbon tax is set to rise after this year's budget in October.
Carbon tax is set to rise after this year's budget in October.
Image: Shutterstock/Krasula

How much money could the carbon tax take in if it was increased?

The government is looking at two models to increase carbon tax and offset the cost to householders.
Aug 25th 2019, 6:30 AM 16,049 56

THE SUMMER IS drawing to an end for politicians and there are two major events on the immediate horizon as they get ready to return to Leinster House mid-September – Brexit and the Budget. 

Brexit will certainly impact the Budget this year, with Finance Minister Paschal Donohoe drawing up two different scenarios, one for if a deal is struck, and the second, if it looks like we’re heading for a no-deal.

Donohoe has tried to quell any expectations of a give-away budget this year, with the Summer Economic Statement revealing that there is only €700 million to play with in October.

One of the biggest talking points of the 2020 Budget is due to be the carbon tax.

Last summer, Leo Varadkar said an increase in it was on the cards for Budget 2019 – but he changed his mind later in the year – instead opting to deal with the VAT rate.

What increase can we expect? reported last year that Donohoe was on the cusp of signing off on a €10 increase in carbon tax only for the later change of mind. 

Documents of a pre-budget submission included a note from Donohoe which read: “I am currently minded to implement a €10 increase on Budget Day.”

The €10 increase would have raised around €210 million in Exchequer funding had it proceeded, according to the document.

Donohoe may well opt to go for the €10 increase this year. The Taoiseach has previously stated that any changes to the carbon tax would be introduced in increments.

The Taoiseach said last year that he had not decided yet if any increase would be implemented from the night of the Budget or if they would kick in on 1 January 2020. 

The Fine Gael approach is for the levy to increase each year, capped at €80 per tonne. The price hike will apply on things such as petrol, diesel and other fossil fuels (impacting things like home heating fuel). 

So what would such increases raise for the Exchequer?

Based on carbon tax receipts in 2018, the finance minister has said there would be a €431 million yield based on a rate of €20 per tonne.

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Increasing the carbon tax to €30, €40 and €50 per tonne, respectively, would raise an additional €215 million, €430 million and €645 million.

While the minister states he doesn’t comment on budgetary matters ahead of Budget day, all indications are the minister will go with the gradual increase, starting with the €10 in 2020.  

Whatever increase the government decides on, all eyes will be on what compensation measures will be introduced to offset the increase.

The government’s thinking in increasing the carbon tax is that it will change people’s behaviours around fossil fuel consumption. The Taoiseach has stated that he doesn’t want the increase impact those in fuel poverty.

Therefore, the government has been considering two ways of offsetting the carbon tax hike – either by giving everyone a carbon cheque in the post or giving it back through the tax and welfare system such as an increase in child benefit funded by the carbon tax or an increase in tax credits and welfare.

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Christina Finn


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