Michael Noonan (Limerick City, Fine Gael)

Deputy Michael McGrath explained the constraints placed on us by the European VAT directives and the difficulty of moving below a rate of 12% on some items because to do so is specifically forbidden. He also referred to the constraints in terms of the permissible number of lower rates. I am informed by my advisers that if VAT on fuel were to be reduced to 12%, then all other VAT items at 13.5% would, under the directives, have to come down to 12% also. The cost of that would be €230 million.

I remind Deputies that our focus here is on creating jobs rather than the broader agenda of alleviating the burden on poor families in terms of the cost of gas, electricity or heating oil. That is a matter for a different set of proposals either through a finance Bill at budget time or through a social welfare Bill. It is not something properly dealt with as part of a jobs initiative. However, the principal reason it is not included in this legislation is the difficultly presented by the VAT directives and the limits they place on our freedom of action in processing matters such as this.

There is a type of contradiction emerging between attempts to reduce the VAT rate on fuel while at the same time, as a result of the Green Party participation in the last Government, we have a situation where carbon taxes are increasing significantly. To increase one while reducing the other certainly gives the impression one does not know what one is doing. However, I take the Deputy's issue. The social welfare code appears to be a more appropriate way to alleviate fuel poverty than the tax system because of the constraints on the latter.

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