Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

There is very little domestic flexibility on VAT which is controlled by EU directives. For example, one can only have two lower rates, so we cannot introduce a 0% or 5% rate for items that we think should be taxed lower. When we moved from 13.5% to 9% on certain services, activities and goods, that was the second low VAT rate. It could be moved back up, of course. There have been a lot of complaints about the price of accommodation, including hotels in Dublin, particularly when key events are taking place. However, to move it up does not solve that problem, it just adds 4.5% to the cost of the bedroom. One would get a bit of vengeance but it does not reduce costs. It is very hard, therefore, to change VAT.

We can compare with other countries and see differences, but the key year was 1991. Anything that was in place before 1991 could continue. If there was a lower rate on something at that stage, it prevailed, but after 1991 we could not readjust.

Profits from Airbnb are subject to a Revenue ruling on income tax. Income tax would be at a higher rate than VAT anyway, but there is something I want to look at in the budget. One of the reasons, but only one, that the amount of rental accommodation in Dublin has been reduced is that quite a number of rooms that were traditionally rented, maybe for students, have become Airbnb rooms, so there is a transfer from the rental market to the tourist industry. The numbers are beginning to stack up. I suggest it is something the committee could have a look at and perhaps suggest ways that we could compensate for the reduction in rooms. I think that is fairly important.

As regards oral medicines and vaccines, I am not familiar with the details, but in general terms there is very little flexibility for varying VAT rates on such things. We could do a general review of VAT in Ireland but it would be opening up Pandora's box whereby the whole country would want to be on the lower rate. I am subject to advice on this, but I do not have a ready-made solution of any sort on this matter.

Some things are not price sensitive. People may propose to take such and such an item from 13.5% down to 9%, but some things have no market effect because they are not that price sensitive. For example, I doubt very much that if contraceptives were moved from the 13.5% VAT rate to the 9% rate, it would change behaviour very much or have a big impact on the transmission of sexually transmitted diseases. Maybe it would, but I doubt it.

It is an interesting debate and if the committee wants to make submissions on it to me, members should make them fairly quickly because there are only three weeks left to budget day.