Irish motorists could end up paying as much as €260 million less in VAT over the next 12 months compared to 2012 if the price of oil on international markets continues in its downward spiral.
The fall is more than most analysts anticipated in the latter part of last year and could leave a hole in the Department of Finance’s accounts over the course of 2016.
The department is responsible for forecasting the VAT yield from motor fuel and most of its forecasts for 2016 would have been developed around the Budget in October when most oil analysts were predicting prices of between $50 or $60 per barrel of oil.
Sluggish forecasts
Since the beginning of the year oil prices have fallen sharply, with sluggish economic forecasts emanating from the EU, the US and China.
The cost of a barrel of crude has dropped by more than 20 per cent since the beginning of the year alone and was hovering just above $30 (€27.60) in the middle of the week.
"A marked deterioration in oil market fundamentals in early 2016 has persuaded us to make some large downward adjustments to our oil price forecasts for 2016," Barclays bank has said. "We now expect [a barrel of oil] to average $37 in 2016, down from our previous forecasts of $60 and $56, respectively."
Standard Chartered went further, with the bank’s experts saying prices could drop as low as $10 a barrel.
The department makes its assessment of likely VAT returns in conjunction with the Revenue Commissioners.
A Revenue spokeswoman said it would not be “feasible to revisit forecasts of government accounts on a continual basis”.
‘Swings and roundabouts’
"It will probably be a case of swings and roundabouts for the Minister for Finance," the AA's communications director Conor Faughnan said.
“When they were making their estimates for the year they would have been very wise not to anticipate high oil prices. I would imagine they made prudent pricing estimates.
“But anyone who tells you they know what oil prices are going to do in the long term is spoofing,” he added.
With the price of a litre of both petrol and diesel falling by about 50 cent since the middle of 2012, the average annual savings for motorists is just under €900 and could top €1,000 if oil prices fall further over the coming weeks.
According to the AA, the average price of a litre of petrol in the Republic currently stands at €1.26 with many garages selling a litre for less than €1.20.
The average price of a litre of diesel meanwhile has fallen to €1.10.
Figures from the AA put the average price of a litre of petrol in the Republic at €1.53 two years ago, while the price stood at €1.70 a litre in September of 2012.
Fuel usage figures from the AA suggest an average car does about 19,000km a year.
If it has a fuel consumption rate of 9.5 litres per 100km, it will use 150 litres of fuel per month - or 1,800 litres a year - translating to an average saving of €900 if a litre is 50 cent cheaper.
