TÁNAISTE LEO VARADKAR has said that the increase in carbon tax next month will be “more than offset” by the Government as part of a new cost-of-living package that is set to be agreed by Cabinet tomorrow.

Speaking to reporters this morning, Varadkar said that the Government had received flexibility from the EU on VAT rates, which would allow VAT to be reduced on both electricity and gas.

The Journal reported yesterday that VAT rates on gas and electricity could be temporarily reduced from 13.5% to 9%, alongside households receiving an additional three weeks payment of the fuel allowance.

“We’ve put together a package that will offset that [carbon tax], in fact, it will more than offset it,” said Varadkar.

“It’ll be both universal and targeted, everyone will benefit from the package but there’ll also be a targeted measure to make sure that those lowest income families get a little bit more.”

Varadkar added that Ireland had received “flexibility” on the EU’s VAT directive, meaning that it would be able to temporarily reduce VAT rates on both electricity and gas without having to increase them to a much higher rate in the future.

Previously, Taoiseach Micheál Martin told the Dáil that Ireland would not be able to temporarily reduce VAT on energy or it would be forced to increase the VAT levels in the future.

However, Varadkar said that this had changed for both electricity and gas, but not for petrol, diesel or home heating oil.

“Under changes that are being made to the VAT directive, we do have some flexibility around that on gas and electricity, but not petrol or diesel,” said Varadkar.

When asked about the Public Service Obligation (PSO) levy being temporarily scrapped, Varadkar said that there would be a decision made on that tomorrow.

The PSO levy is a charge applied to all energy bills and it is currently €4.30 a month, excluding VAT, leading to a yearly charge worth €58.57 per year inclusive of VAT.

Varadkar said that scrapping the PSO levy would not immediately see a reduced cost in bills, adding that it would be autumn before the measure would kick in.

One of the difficulties with the PSO levy is that any benefits around that wouldn’t kick in until the autumn and we felt that we needed to do something now and have something that would kick in in the first week of May.

He said that the Government could not “fully compensate” people for the cost of living, but added that there was more they could do.

Varadkar was speaking at the launch of a new Irish trade strategy, which would see multiple Government ministers take part in a yearly mission to boost trade.

He said that the plan was developed to help “consolidate” Irish trade and to remain ahead of competing countries.

Holohan report

The Tánaiste confirmed that he had received a copy of the report on the secondment of Chief Medical Officer Dr Tony Holohan to a role in Trinity College Dublin, but that he had not discussed it with the coalition leaders or Health Minister Stephen Donnelly.

Varadkar said that Holohan leaving the public service was a loss and added that the controversy could have been handled better.

“I received the report last night and had a chance to read it, it’s quite short.

I haven’t had a chance yet to discuss it with the Taoiseach, Minister [Eamon] Ryan and Minister [Stephen] Donnelly.

He said that due to the large amounts of money involved, the proposed secondment should have either been signed off by a Minister or by the Cabinet.