Kieran O'Donnell (Limerick East, Fine Gael)

On financial resolution No. 3, the reduction in the standard rate of VAT from 21.5% to 21% was part of our pre-budget submission. It defied logic why the Government sought in its wisdom to increase the VAT rate from 21% to 21.5% in the last budget. It also increased the VAT rate on the day of the budget but we now find that when it proposes to reduce VAT, the reduction does not become effective until 1 January. It makes no sense.

There is an old rule in business that should apply to Government - if business is going badly the last thing to do is increase prices. How did the Government think that raising VAT from 21% to 21.5% in the busiest month of the year for traders and in the middle of a bimonthly VAT period, November-December, would work? It showed a complete lack of understanding of how business operates.

I congratulate the Government for admitting its error and reversing the increase but the reverse should be effective from today to allow people to benefit for the month of December. Why is the reduction not happening until 1 January when last year the increase was effective from the date of budget?

The Minister for Defence has explained resolution No. 4. It is a margin scheme that brings us into line with other EU countries, whereby VAT is now paid on the margin, a fair move. Why was the VAT rate increased last year? It affected a range of businesses.

Why did the Government not see fit to reverse the travel tax? Deputy O'Dea will be well aware of its effect on our constituency and the wider mid-west. It did not generate a huge amount for the Exchequer but it has done massive harm to tourism and the hotel industry. Both Aer Lingus and Ryanair have stated that the travel tax was a huge deterrent. Holland and Belgium reversed their travel tax but it is not a measure allowed for in this budget.

In our pre-budget submission, we called for a reduction in the 21% standard rate of VAT and for a reduction in the lower rate of VAT from 13.5% to 10% as a temporary measure until the end of 2010. The lower rate applies to many labour intensive industries. The Tánaiste must elaborate why the reduction is not being introduced until 1 January, why the increase was introduced much earlier last year and why the Government did not abolish the travel tax. Was consideration given to a reduction in the lower rate of VAT?

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