Earlier this week, the Government announced a relatively paltry decrease in the excise duties to be paid at the pump on diesel and petrol, as well as a similar cut for home heating oil and agricultural diesel. The purpose of this policy, meagre though it is, is to reduce the impact of the Iranian war and its accompanying oil shock on Irish families.
The very idea of cutting taxes on fossil fuels is, of course, alien to the political class, who view fuel taxes – and alcohol and cigarette taxes – as a one-way ratchet, to be increased annually and never reversed. Nobody was more annoyed, it seems, in establishment Ireland than the Economic and Social Research Institute, commonly called the ESRI. Here is their thundering, though ludicrous criticism, as told to the Irish Times:
To shield consumers from the current price shock, the Government this week announced cuts to excise duty on fuel.
The ESRI, however, criticised the measures, saying they were untargeted and represented a “subsidy to higher income households”.
About 50 per cent of the cost of cutting indirect taxes on energy would go to the top 40 per cent of households, Prof Alan Barrett said.
If the Government had designed a policy to give 50 per cent of the Apple tax windfall to the top 40 per cent of households it would be viewed as “strange”, he said.
This is a sleight of hand of barely imaginable proportions, and the ESRI should not be permitted to get away with it, as they have been by the rest of the media. Let’s consider why:
First, excise duties are a regressive, not a progressive tax. That is to say, they disproportionately impact lower earners rather than high earners. Consider somebody who earns €30,000 per year, versus somebody who earns €70,000 per year, both of whom run a standard diesel car driving about 10,000 kilometres annually. Assuming a standard fuel economy of 5 litres per 100km, both individuals will need to purchase 500 litres of diesel annually. At the current fuel price of around €2 per litre, this means both people will spend €1,000 annually on diesel, and at current fuel taxes both will pay about €600 to the government in fuel taxes.
Since €600 is 2% of the lower earner’s total income, and just 0.86% of the higher earner’s income, the lower earner is being disproportionately taxed. Thus, fuel taxes are a regressive tax. They hit the poor harder.
Let’s be absolutely clear: The ESRI being, as it is, an economic institution, is well aware that fuel taxes are regressive. It is also presumably aware that one reason higher earners will benefit most from fuel tax cuts is that higher earners are disproportionately able to afford cars! One of the reasons that lower earners cannot afford cars is, of course, high fuel taxes.
What the ESRI is doing, therefore, is engaging in a kind of rank dishonesty and hoping that nobody will notice it or call them out on it. And they have, at least prior to my hitting “publish” on this article, been proved correct on the latter point.
The other point here is, of course, the ESRI’s entirely selective commentary: Note for example that though there is criticism of the fuel tax cuts as disproportionately benefitting the rich, there is no accompanying praise for the home-heating oil tax cuts, which – any way you cut the numbers – benefit the poor at a greater rate than the wealthy. The ESRI for some reason cannot bring itself to apply the same standard there, and say openly and truthfully that home-heating oil tax cuts benefit the poor. Why?
One might, if one were a cynic, come to the conclusion that the ESRI’s position on fuel tax cuts is not in fact primarily derived from whether they benefit the rich or the poor, but from the organisation’s assumed position that fossil fuels are bad and should always be taxed at a higher rate, even if that is deleterious to household income. That would be a fair position – it is, for example, the position of the electorally trounced Green Party. But it is not the official position of the ESRI, for whatever reason.
In any case, this statement from the ESRI is the sort of thing that any journalist worth their salt should be challenging the organisation on. Instead, like so many left-wing talking points, the mainstream media launders it straight into the discourse with the ESRI’s stamp of approval all over it.
That, to my mind, is a dereliction of the media’s duty. As for the ESRI, we should continue to ask why one avowedly left-wing think tank is given such a privileged position in Irish society, even as it pursues an avowedly ideological agenda.