Financial Resolution No. 4 provides for an increase of 0.5% in the standard rate of VAT, increasing the rate to 21.5%, with effect from 1 December next. The change will apply to all goods and services which are currently subject to the standard VAT rate of 21%, such as cars; petrol and auto diesel; electrical equipment; CDs and DVDs; alcohol, cigarettes and tobacco; telecommunications; furniture; cosmetics; and adult clothing and footwear. Approximately 54% of all goods and services are subject to the standard rate of VAT. The effect of the proposed increase of 0.5% in the standard VAT rate is that the price of goods and services subject to that rate will increase by 0.413%. This equates to an increase of 8 cent on a good currently costing €20, or 41 cent on a good currently costing €100. There will be no change to the 0% rate of VAT which applies to a range of goods and services, including most food; children's clothes and footwear; and oral medicines. Similarly, the 13.5% rate of VAT, which applies to new houses; electricity; gas and home heating fuels; restaurant services; and other labour-intensive services, including hairdressing and small repair services, will be unaffected by this change. It is estimated that the proposed increase in the rate of VAT will raise €208 million in 2009 and €227 million in a full year. It will have a 0.23% impact on the consumer price index, assuming that the increase is passed on in full to the consumer.

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