A few days after the announcement of the €250 million package to lower fuel costs and extend the fuel allowance payments for four weeks, I was chatting with a small group of Dublin-based foreign diplomats at the fringes of an event.

Most had variations on the same two questions. Why did the Government move so quickly to introduce the measures? And why were they reducing the cost by so much?

There were surprising questions.

Given all the “are we there yet? Are we there yet?” media coverage of the past few weeks, and the incessant pressure from the Opposition, the abiding impression many had was that the Government had tarried before introducing measures. And when they were introduced, they were far more modest than those announced following Russia’s invasion of Ukraine.

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Back then, in addition to decreases in petrol and diesel prices, there were once-off payments to every household in the State to help meet energy bills. All in all, there were three lump-sum payments of €200 in 2022, which cost the Exchequer a total of €1.3 billion.

The payments continued into 2023 at a slightly more modest €150 per household, but it still cost the State €1 billion. In the final year of the payments, 2024, the number was reduced to two, each worth €125. That still cost €500 million, without taking the cuts in excise duty into account.

The point being made by the diplomats was that there were very few other European Union countries offering such generous packages.

The most well-publicised example was Italy, where Giorgia Meloni and her government reduced the price of diesel and petrol by 25 cent. However, that measure was due to end after 20 days. The Italian government is currently considering an extension.

One consistent message from the ESRI is that cutting indirect taxes on energy is a poor way to protect those most affected by rising energy prices

One consistent message from the ESRI is that cutting indirect taxes on energy is a poor way to protect those most affected by rising energy prices

Of the EU 27, Spain’s has been the most expansive. It has announced a cut from 21 per cent to 10 per cent, resulting in petrol and diesel being about 30 cent per litre cheaper. Hungary has approached it from another direction. It has not reduced prices directly but has instead set an upper limit on how much a litre of petrol or diesel can cost. Petrol has been capped at €1.54 per litre, while diesel has been capped at €1.59.

Ireland’s reductions of 15 cent per litre of petrol and 20 cent per litre of diesel seem modest by comparison, but the duration is longer than in most other European countries. This has not stopped diesel creeping up beyond €2.20 per litre in some outlets.

France has introduced a price cap of €2.09 on diesel and €1.99 on petrol. While there is no direct discount, the net impact is similar to the Irish prices, at least for now. Most of the Nordic countries have introduced no measures at all, except for Sweden, which plans to introduce a reduction of 30 cent per litre, but not quite yet.

Some other countries have been less flaithiúil. Germany has prohibited retailers from increasing prices more than once a day, but that has had only a very small impact. In Poland and Portugal, reductions amount to between 3 and 7 cent per litre. Austria has gone a little further, with about a 10 cent per litre reduction – still only half that of Ireland.

As many as ten EU countries have not introduced meaningful policy responses at this point. That is not to say that the Irish response to the spike in energy prices has been wrong but it should be viewed in the context of what other countries in the union are doing.

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It is likely, as Simon Harris signalled this week, that if the war continues, the measures introduced by the Government will be reviewed and continued or expanded. That seems likely. Countries in Asia are currently rationing energy. There may be a shortage of aviation fuel if the blockade of the Strait of Hormuz continues indefinitely. It could make the “energy crisis” of 2022 look like no more than a bump in the road.

The Government should also listen to voices beyond those of politicians when drawing up policy responses to the energy crisis.

One consistent message from the ESRI is that cutting indirect taxes on energy – such as VAT, fuel duty or even the carbon tax – is a poor way to protect those most affected by rising energy prices. The institute has found that about 50 per cent of the gains from such tax cuts go to the top 40 per cent of households by income, with the lowest 40 per cent getting less than a third.

Politicians and observers tend to favour the simplest, most visible solutions, the ones visible at the garage forecourts. It may seem that everyone is benefiting, but the reality is that they are neither fair nor evenly distributed and, again, rich people disproportionately benefit.

The ESRI has argued a better approach would be to increase welfare payments and fuel allowance (the latter was done this time). A double welfare payment or increases in the working family payment, which is a powerful anti-poverty measure, would target more effectively.

That might be the most sensible approach. But since 2020 there have been high expectations around how the Government responds. Saying no is a hard sell.

© The Irish Times