Joan Burton (Dublin West, Labour)

I wish to share time with Deputy Martin Ferris and with Deputy Liz McManus tomorrow morning.

Fine Gael are to be complimented on raising this issue which is very complex. We must tease out the purpose of the motion and what its impact might be, especially regarding carbon emissions. There is a cross-party agreement about the need to reduce these because of their impact on the planet but also because, from last year, those carbon emissions will cost this country more and more each year if we do nothing about them.

When the then Minister for Finance, Charlie McCreevy, last cut VAT in 2001, he reduced the top rate from 21% to 20%. However, the rate of VAT had to be raised again from 20% to 21% in the following budget, because the decrease was not passed on to consumers. The difficulty with this motion is that it focuses on the generation of funds using carbon emissions and the emissions trading scheme, but who benefits and are these people just beneficiaries? Unfortunately, if the VAT rate is reduced from 13.5% to 12.5%, there is no mechanism suggested in the Fine Gael motion whereby the benefit of that reduction is guaranteed to be passed on to consumers. This applies to those filling their tanks with oil or diesel and those buying the limited range of products and services which are taxed at 13.5%.

The €1.6 billion windfall to electricity generators arising from the highly flawed and complex EU emissions trading system is a red herring. Unlike actors in the private sector, the ESB did not receive a full carbon credit allocation for its needs. It will have to buy credits from abroad or else pay a fine. It is not clear when this system will begin. Under the current regulatory system the bulk of that cost will be passed to end users and ordinary consumers and there is no guarantee that ordinary consumers will benefit from the reduction.

This motion does not impact on the other major carbon emitters, especially the cement industry. I understand the difficulty of those who framed the motion as the second largest carbon emitter is the cement sector, which is a private industry. CRH plc is the dominant player in the industry in terms of carbon trading. There is no indication of what impact there would be on it as a major carbon emitter. The ESB is owned by the taxpayer and from his or her point of view it is a question of moving money around. As the ESB could face potentially large fines which the taxpayer would have to fund, the public purse might be used to fund for the apparent saving in a different way over a short time. The energy regulator has agreed to electricity price increases because of the increasing cost of power generation.

CRH plc received a free allocation of carbon credits from the Government. Its allocation represents a greater proportion of carbon credits than it needs and it is the biggest emitter of carbon dioxide. The proposed reduction in the VAT rate from 13.5% to 12.5% applies to a limited range of goods and services. Ironically — I do not know if this was in the minds of those who framed the motion — the producers of concrete and concrete blocks would be among the major beneficiaries of this reduction. This does not apply to paving and other types of masonry, which are taxed at the 21% VAT rate. The reduction would apply to the core business of concrete producers. The reductions would not necessarily affect those in the housing industry who concentrate on more environmentally friendly production, which leaves the motion with unresolved problems.

The Exchequer figures released today paint a dire picture for the new Minister for Finance. The deficit for the first five months of 2008 is running at €3.6 billion, whereas this time last year there was a surplus of over €200 million. The worsening position for the first five months of this year amounts to a swing of €3.8 billion in one year, which is a serious position for the economy and we should examine the motion in that context. The Labour Party cannot support the motion as set out here as it lacks definition and seeks to change a specific tax rate in a narrow rather than a comprehensive way. Given the state of the Exchequer returns which we heard of today, what is needed is a comprehensive package to address the varying needs of the economy. The outcome of simply changing a narrow VAT rate as suggested is not certain.

The wording of the Fine Gael motion seeks especially to address the rising cost of fuel facing motorists at the fuel pump with the problems of others, including pensioners who face the possibility of fuel poverty. However, the difficulty with reducing the VAT rate from 13.5% to 12.5% is an altogether uncertain outcome. The only previous occasion on which a VAT reduction was attempted was in 2001 by the then Minister for Finance, Mr. Charlie McCreevy. The following year when the economic situation worsened Mr. McCreevy was forced to raise the rate again as suppliers, wholesalers and retailers absolutely refused to pass on the benefit of the VAT reduction to the intended beneficiaries, namely, the people who bear the VAT, the ordinary families and those not otherwise registered for VAT. Those in business pass on VAT to the end user. This issue needs to be addressed and teased out.

This is a very difficult time for the economy. It behoves us all as politicians to treat seriously these issues and the looming Government deficit and to advance responsible policy positions. These positions need to be strategic, take account of short and medium-term needs and must be clearly targeted. We must be certain of the outcome of the impact of these positions. This proposal is, unfortunately, short term in nature; the period covered runs to 2012. If the medium and long-term outlook for the economy continues to remain as negative as today, what will replace this proposal when we reach 2012 and these proposals disappear?

There are two Irish economies, the construction sector and the rest. The notion that the rest of the economy need not be taken into account in this motion is wrong. The Labour Party said previously much work needs to be done by the construction industry to meet commitments in the national development programme. Schools endure sub-standard accommodation in prefabs. There are issues with public transport provision. If there was, for example, a definitive investment in public transport with 300 extra buses for Dublin city, or investment in the extra transport required for the rest of the country, there would be a stimulus to the economy, but there would also be a potentially significant reduction in carbon emissions. This, in turn, would reduce the penalties due to be imposed on Ireland by the European Union. The Labour Party will not support the motion for this reason.

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