Kieran O'Donnell (Limerick East, Fine Gael)

I congratulate the Minister for Finance, Deputy Lenihan, and the Minister of State at the Department of Community, Rural and Gaeltacht Affairs, Deputy Curran, on their appointments. I also congratulate Deputy Coveney on bringing this motion before the House.

This is a straightforward issue of policy and nothing complicated is being proposed. Windfall profits are earned by electricity generators when they incur no costs and this amounts to a hidden subsidy. This is costing the taxpayer and we propose a simple measure. Between now and 2012 the various electricity generators will not pay carbon tax and we propose that the VAT rate be reduced from 13.5% to 12.5%. This would be brought about by charging generators a levy based on their use of carbon allowances at the market rate.

A result of this would be a reduction in inflation. Earlier today we discussed the fact that the Irish inflation rate is above the EU average and almost 50% greater than the rate of our major trading partner, the UK. Some 45% of non-mortgage inflation in the past seven years was caused by Government regulated areas. This is an opportunity and a straightforward policy choice. We propose that in a market economy businesses should not be subsidised by the Government.

The Taoiseach today suggested that it was likely a VAT reduction would be absorbed by retailers and not passed on to consumers. My colleague, Deputy Varadkar, pointed out that, through the National Consumer Agency, legislation exists to ensure a VAT reduction would be passed on. In Government regulated areas like gas and electricity, it is very evident that the effects of a reduction in VAT from 13.5% to 12.5% would be visible.

The Taoiseach also said it is important point out that the revenues available to the ESB and others are factored into their capital programmes for providing alternative energy sources. This is a point on which we fundamentally disagree with the Government. We believe that, like any other private enterprise, these companies should not base capital projects on Government subsidies. They should be based on money raised in the market in the form of equity or through the leverage of debt. These are fundamental points on which we differ.

Our motion comes against the backdrop of today's Exchequer returns which showed a shortfall of €1.2 billion in tax receipts for the first five months of the year. The Exchequer deficit is €3.6 billion compared to a surplus of €260 million this time last year. Up to April this year, tax revenue was €700 million behind the target and a further €430 million shortfall was incurred in May. VAT alone is behind by €600 million in the year to date. What we are suggesting in this motion will stimulate the economy, lower inflation by 0.2% and provide €200 extra per annum per household. This is a straightforward measure and the Minister might reflect on it.

Why give 10% of a carbon tax to a private body that, effectively, incurs no cost? Is this a good use of the Exchequer and taxpayers' money? We suggest that up to 2012 the Government give the taxpayer the benefit of the windfall taxes that various private energy generators receive. It can be passed on in the form of reduced costs through a reduction in VAT from 13.5% to 12.5%.

The VAT rate of 13.5% applies to construction and at the moment this sector is experiencing difficulties. People on lower wages are struggling with energy costs associated with the ESB, gas and coal. This is also the case across a range of areas, including restaurants. It is important that when the reduction in VAT comes about the Government ensures, through the use of agencies such as the National Consumer Agency, that it is passed on to consumers.

I support this straightforward motion. The measures contained in it will provide stimulus to the economy and reduce the rate of inflation. It is critical, if we are to remain competitive, that the pay talks we are facing prove to be fruitful and sustainable. The only way we can achieve this is to bring down our inflation rate. This will provide an extra €200 per annum to hard-pressed taxpayers and low income earners. Overall, it is a policy decision that will make use of windfall gains for which electricity generating companies are not paying. Effectively, they are getting carbon allowances free up to 2012.

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