Tax giveaways have been a feature of recent Irish budgets and competing promises dominated the general election last November.

Some have survived into the Programme for Government, supported by the belief that the recent run of budget surpluses will be ongoing.

If the bonanza in corporation tax revenues is artificial and vulnerable to unilateral action by the United States, the apparent surpluses will fall during the lifetime of the Government and there will be a renewed search for tax revenue in other areas.

This is the conclusion to be drawn from the investigation featured last weekend by the Business Post, reporting the extent of tax avoidance, perfectly legal, by US multinationals based here and flagged repeatedly by commentators for over a year.

Vocal

The US Commerce Secretary, Howard Lutnick, has been vocal in his criticisms and it is likely that the Trump administration will make changes to US domestic tax law which will see the end of Ireland’s piece of good fortune, financed by the US Treasury.

It is important to be clear that this is a distinct risk, peculiar to Ireland, and additional to whatever macroeconomic damage ensues from the tariff war that Trump has initiated.

Even if a full tariff war is averted in the president’s next mood swing, no other EU country has become so exposed to unilateral changes in US policy on corporation taxes.

Moreover the climate for business internationally has been damaged in Trump’s first few months in office and an economic slowdown may already be under way.

Finance Minister Paschal Donohoe has signalled in recent months, responding presumably to worries amongst his officials, that he sees risks in the continuing overshoots on public spending beyond budgeted provisions and in the prolongation of tax giveaways.

If Government is forced to respond to a deteriorating economic outlook with tighter expenditure control, they could also look for opportunities to actually increase taxes and non-tax sources of Government revenue, such as water charges.

The farm sector is particularly exposed because of the widespread perception that the lower rate of excise duty on ‘green’ diesel is a subsidy to the agricultural sector. It is not – the use of fossil fuels in road vehicles is taxed as a surrogate for road user charges, and tractors do not use the public road network to any appreciable extent.

Stationary

Accordingly, the diesel fuel used by tractors is taxed at a low rate, but so is fuel used by stationary engines, and for the same reason. Stationary engines do not use the public roads either so there are no costs of road use to be recovered.

Ireland does not have a widespread system of direct charging for the use of the road system – there are tolls on parts of the inter-urban road network and at a few locations in Dublin but Government has been scared to introduce direct road user charging, or even congestion charging in cities.

The costs of the road system are recovered through various taxes on motoring, mainly taxes on road fuel but including the rather heavy taxes on purchasing vehicles called VRT (Vehicle Registration Tax), not charged at all in the United Kingdom.

Discourage

These taxes are not designed to discourage carbon emissions and have been around a lot longer than concerns about climate change.

Green diesel pays tax of a few cents on top of the ex-refinery price, but auto-diesel costs roughly double.

It so happens that, when account is taken of road construction and maintenance costs, and the costs of things like traffic policing, the total annual bill attributable to road users, about €5 billion per annum, is roughly equal to the total amount imposed on them through fuel taxes, driver and vehicle licence fees and the substantial taxes imposed on vehicle purchases.

But green diesel looks a bargain to the purchaser, as it is in the United Kingdom, and there is an illegal trade in ‘washing’ the green fuel to look like the more expensive auto-diesel product.

Some European countries have avoided the creation of this opportunity for fiddling by charging the same taxes at the retail level with a rebate scheme for farmers.

Because the Central Statistics Office and some other State agencies classify reduced tax rates as a subsidy, independently of the purpose for which they are applied, there have been suggestions that the tax reduction on green diesel should be reduced or abolished altogether.

The best way to resist this would be to establish, perhaps through a survey of farmers, that most tractors on most farms in Ireland rarely venture out on the roads at all, are collectively not responsible for road wear and tear and ought not be charged the high rate of fuel tax. The lower rate of tax on green diesel is simply not a subsidy.