Michael McGrath (Cork South Central, Fianna Fail)

A little light relief is no harm on days such as this. We all welcome that.

Let us take one example. Car sales have gone into decline since the end of the scrappage scheme in June. Figures released on Friday by the motor industry show that car sales in November were down 50% on those for the same month last year. The 2% VAT increase will add €300 to the cost of an average family car. The State collects considerable revenue from car sales in terms of VAT and VRT. The Minister may find that not alone will VAT returns be depressed but other forms of tax such as VRT may suffer a knock-on effect as people adjust their spending patterns on the basis of this VAT increase.

We need to consider what will be the impact of the VAT change on customers in the Border region. I am not prone to exaggeration and will not suggest, as did many of the Minister's colleagues when on this side of the House, that increasing VAT will send everyone over the Border to shop. However, I do listen to those close to the ground. For example, the Derry Chamber of Commerce is celebrating the Government's decision to increase our VAT by 2%. It is adamant that this will result in more people going across the Border to shop. The Dundalk Chamber of Commerce also makes the same point. It believes its businesses will be hammered because of the VAT increase here. Where borderline decisions are to be made on purchases, people will go over the Border. Not alone will they purchase that particular item but they will do other shopping too, resulting in a loss to the Exchequer.

The Minister has often made the point that the euro-sterling exchange rate is also an influence on cross-Border shopping, which I accept. While that exchange rate may be favourable now, a weakness in the pattern of the exchange rate on the sterling side will have a major impact on us. A combination of the VAT increase and an adverse movement in the exchange rate could exacerbate the problem. The Minister is aware that VAT is way under profile. The latest Exchequer returns put it at €464 million compared with profile, which is not fully explained by the reduction in VAT announced in the jobs initiative.

The difference between what was said by Members of the Government parties when in Opposition and now when they are in government is incredible. The Minister for Jobs, Enterprise and Innovation, Deputy Bruton, for whom I have great respect, said in Opposition, in response to a 0.5% increase in VAT by the late Brian Lenihan: "The Minister has made decisions today that will threaten to turn a recession into a depression." The Minister for Social Protection, Deputy Burton, who I regret is prone to exaggeration said: "the Minister is proposing to increase VAT by 0.5% to an astronomical 21.5% ... one of the highest rates in Europe", which she said would send "shoppers scurrying over the Border to queue in ASDA in Enniskillen and Sainsburys in Newry." I would love to know what she thinks about increasing VAT to 23%.

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