Willie Penrose (Longford-Westmeath, Labour)

At least this a belated recognition of the wrong-headed decision to impose an increase in VAT in last year's budget. The Government has contributed significantly by way of charges and indirect taxation to our loss of competitiveness. Forfás and other groups have pointed out repeatedly those are an essential component in that loss.

VAT is an essential component that drives prices, particularly when it is increased, and its impact is felt across a significant and comprehensive range of goods and services. A significant reduction in VAT leads to an increase in competitiveness. It helps to sustain existing employment and acts a beacon of hope for incubator industries to get off the ground, it is a light at the end of the tunnel. That is where this budget fails. There is no light at the end of the tunnel when it comes to a stimulus for job creation. In terms of stimulating job creation there is no spark or impetus to give hope to those thousands of people who look to this budget for a ray of hope to get them back into employment. Sometimes the Government will say it cannot reduce VAT as it would leave a bigger hole. If there are outflows as a result of the Minister's decision, the hole gets bigger. It is like the circular bird, no matter how often one goes around one will come back to where the bird started to fly. This is the Government's thinking. It does not think outside the box. It is a very worrying feature of Government of late.

We still have VAT rates notwithstanding the decreases in excise duty which were passed earlier. I would like to see a comprehensive cost-benefit analysis in respect of excise reductions to see what they will mean and where they will impact and how they will sustain employment. We all know that areas in the drinks industry are under pressure. I know from my constituency that people in Mullingar who have an industry in that area certainly reflected that this would be an important aspect of the budget. Given all that, it is difficult to see how that measure alone, together with the 0.5% reduction in VAT proposed, will stem the flow of people across the Border.

I am chairman of the Joint Committee on Enterprise, Trade and Employment and I have to be reasonably constructive. I want to take every positive and constructive measure to ensure people are put back into employment and jobs under threat are retained. How will this work? The 0.5% VAT increase by the Minister for Finance, Deputy Lenihan, in the previous budget can be described as the most foolhardy imposition every made. Its impact was as much psychological as it was real because within weeks Mr. Alistair Darling reduced his VAT by 2%. We increased the rate by 0.5% and widened the differential to 6.5%. Nobody should try to tell me that did not have a significant impact on a range of goods and services in this context. It sent all the wrong signals and contributed to a significant loss of competitiveness and ultimately the loss of jobs. It also helped accelerate the level of traffic across the Border, having accentuated a price differential which was already significant in the context of competitive factors feeding into it and the weakness in sterling.

I accept that every reduction is important. It is time to move further in this area. Indirect taxation leads to a loss of competitiveness. I appreciate it is important in terms of raising revenue but this is an important area.

The Minister gave a comprehensive outline of Resolution No. 4 which bring us into line. I am not in a position to dispute it or to make a constructive contribution in that regard. However, the VAT reduction, although small, is a step in the right direction but it is an inch instead of a yard.

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