Minister for Finance Paschal Donohoe has said that a temporary cut in VAT on fuel bills will lead to a saving of more than €50 on an annual gas bill and €70 on an annual electricity bill.
The VAT cut from 13.5% to 9% will begin on 1 May and last until 31 October.
He said that the cost to the Exchequer of the rate cut would be an estimated €46m.
Cuts to excise duty on petrol and diesel, announced last month, will last until Budget 2023.
The Public Service Obligation (PSO) Levy will be set to zero by October 2022.
Mr Donohoe also announced that an additional once-off lump sum €100 fuel payment allowance has been agreed.
This would benefit more than 370,000 of the most vulnerable householders, struggling to meet their energy costs, he said.
Minister Donohoe said the Government overall has now responded to the changes that are taking place in the cost of living with measures totalling just under €1.9 billion.
He said the temporary VAT rate cut was “being introduced in recognition of both with the challenge of the cost of living, but also in particular to offset the increase in carbon tax, which will take effect from 1 May.”
He said the carbon tax increase would add “€16.85 to an annual gas bill, and €21.56 to a fill of home heating oil.”
Mr Donohoe said he has reached the limits of what he can do when it comes to changes to taxation and inflation.
He told a press conference this afternoon that all the measures he can do “consistent with the tax laws of the EU” have been done.
He said he has ‘no plans or capacity’ to do more and that he has already introduced the largest reduction in excise duty in recent history and lowered VAT rates.
Minister for the Environment, Climate and Communications Eamon Ryan said the VAT cut to gas and electricity will help householders and the supports being provided by the Government “are at the very top end of what countries are doing”.
“We’ve always said we won’t be able to cover all the costs that are out there, because of international factors, but I think if you compare Ireland with other European countries, I think our level of supports are at the very top end of what countries are doing,” he said,
“I think that’s right,” he added.
However, there has been criticism that home heating oil has not been included in the measures.
“If we do it with home heating oil, we’d have to do it to a whole range of other services which would affect the income to pay for education, social services, health,” Minister Ryan said.
A voluntary organisation dedicated to supporting older people has said that the Government’s VAT cut on gas and electricity bills doesn’t go far enough because the 4.5% cut doesn’t extend to home heating oil or solid fuels.
Active Retirement Ireland has said that many older people rely on these energy sources to heat their homes.
Its CEO, Maureen Kavanagh, has welcomed the VAT cut on energy bills, but said it disappointing that it stopped at gas and electricity.
“The majority of older people would still be using older heating systems, particularly those in rural Ireland, and that we are hearing from our members that they would have liked to see the costs of home heating oil and solid fuel come down in the VAT reductions,” she said.
“A 9% VAT on, say, home heating oil, would have seen a €500 bill… come down by €20 – and that’s a significant amount of funding, you know, for people that are struggling on a set pension that isn’t meeting and is not rising at the same rate as the cost of living.”
“We’re delighted to see the VAT decreases on gas and electricity products – we had asked for that,” she added.
“But understanding where older people are coming from – it would have been really, really, good to see solid fuel and home heating oil included in the VAT reduction.”
Today, officials will meet with employer and worker representatives to begin work on reaching a consensus on the approach to the rising cost-of-living.