Joe McHugh (Donegal North East, Fine Gael)
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Question 7: To ask the Minister for Finance if he will publish the latest comparison of price before and after tax between the Republic of Ireland and Northern Ireland; and the tax difference on excisable products between the two jurisdictions which currently apply. [12579/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I assume the Deputy is referring to the periodic informal survey of cross-Border prices undertaken by the Office of the Revenue Commissioners.

I wish to advise the Deputy that the Office of the Revenue Commissioners' periodic informal survey, which provides a snapshot of the retail prices for the main excisable commodities observed in market outlets in Dublin and Newry, was most recently carried out on 21 January 2009. A summary of the results of that survey and of a number of other surveys since February 2007 are published on Revenue's website at www.revenue.ie/en/about/publications/index-cross-border-price-comparisons.html.

In brief, the 21 January 2009 survey, when the euro to sterling exchange rate used was 0.9267, which is reasonably close to the current exchange rate, shows in particular that alcohol and tobacco products were considerably dearer in this State than in Northern Ireland. The price of petrol was about the same, auto diesel was cheaper in this State, while that of home heating — kerosene and diesel — was dearer. Of course, not all of the differentials can be accounted for by differentials in tax or excise treatment. Some of them reflect different prices being charged for the same product between the two jurisdictions.

It has to be recognised that we have a long-standing policy, for sound health and social reasons, of applying high excise rates to alcohol and tobacco products. Our excise rates on such products are higher than those in the UK, which has also followed a policy of imposing high excise rates on such products. Consequently, Ireland has the highest excise rate on wine in the EU. It should be noted that the difference between the excise rates that apply to wine in this State and in Northern Ireland is somewhat smaller than the difference between the rates that apply to other alcoholic products. Ireland has the second highest excise rate in the cases of beer and spirits. The difference between the prices of beer and spirits on either side of the Border is wider than the difference between the price of wine. Excise duty on beer has not been increased since budget 1994. Excise duty on cider has not been increased since budget 2002. Excise duty on spirits has not been increased since budget 2003. Excise duty on wine was increased in last year's budget by 50 cent, inclusive of VAT, per standard bottle, having remained unchanged since budget 1994.

Ireland charges the highest excise rate on, and price for, cigarettes in the EU. The excise rate on cigarettes, inclusive of VAT, has been increased in the last three budgets by a total of €1.30. As Deputies will be aware, there are ongoing demands for the rate of excise on cigarettes to be increased by significantly more. Any further increases in the rate of excise on tobacco will have to be considered in the context of the law of diminishing returns that applies to tax increases.

Additional information not given on the floor of the House.

Due to our high excise rates and higher VAT rate, taxes contribute to our higher prices for alcohol and tobacco products. Non-tax costs also contribute to our higher prices, however, especially in the case of beers, spirits and most wines and, to a lesser extent, in the case of cigarettes. In the case of beer, non-tax cost differences are high. The overall price differences for cans and bottles of beer varies from 55 cent to 76 cent. Excise duties and VAT account for between 21 and 24 cent of the difference. Non-tax trade costs account for the remainder of the difference. In the case of petrol, following an excise increase of 8 cent per litre, inclusive of VAT, in budget 2009, the price per litre is broadly the same in both jurisdictions, as is the tax take and the non-tax cost. Auto diesel is approximately 15 cent per litre cheaper here, due to lower taxes. As I have already said, the price of kerosene is higher in this State due to higher taxes and, particularly, higher non-tax costs. Overall, diesel for heating purposes is dearer here despite the tax take being lower than in Northern Ireland.

In comparing indirect tax, we must remember that taxation strategies generally reflect the political choices made by Governments to meet their specific needs and requirements. In this regard, Ireland has focused on achieving a low taxation economy, especially in the area of direct taxation, which includes income tax and corporation tax. This has delivered significant advantages for Ireland's competitiveness. In ensuring a relatively low level of direct taxation on income, we have had marginally higher indirect taxation.

In conclusion, I emphasise that the considerable weakening of sterling relative to the euro has had a far more significant impact on changes to relative prices between this State and Northern Ireland than any tax changes, including those made in the standard VAT rates. For example, sterling has weakened by 36% since early August 2007, and by 18% since early October 2008. The extent of the depreciation of sterling can best be illustrated by cross-Border comparisons of petrol prices. In January 2004, petrol in this State was approximately 27 cent cheaper per litre than in Northern Ireland. Prices are now broadly the same in the two jurisdictions. I use petrol as an example because the Irish and UK excise rates have moved by broadly similar amounts over the last five years. It is clear that exchange rate movements, rather than tax changes, are driving price differentials. I am informed by the Revenue Commissioners that a further cross-Border price survey is being undertaken. In line with usual practice, the results of the survey will be posted on the website of the Revenue Commissioners.

Joe McHugh (Donegal North East, Fine Gael)
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I apologise for getting out of the traps a little too fast earlier. I got out of my seat as quickly as people are crossing the Border to spend money. I accept that the Minister will say that the contents of the forthcoming budget are private and confidential until the Budget Statement is made. Will he consider providing some type of stimulus package in the budget? Sweden has introduced a 0% VAT exemption in the case of domestic housing services. Germany has put in place a €2,500 scrappage scheme for cars. Similar incentives and tax initiatives are being offered in various countries. Will the Minister consider reducing the 21.5% VAT rate? It deserves serious consideration in light of the Minister's acknowledgement that €700 million has left the Irish economy since the last budget.

Will the Minister pay particular attention to the price of certain goods, such as baby products? A Cow & Gate baby food product that costs €12.64 in Tesco in Letterkenny costs just €7, on average, in Sainsbury's in Derry. Will the Minister consider reducing the rate of VAT that applies to certain items, such as baby products? He should incentivise people to buy certain products, such as building materials, ecologically friendly products, garden plants and trees. We need to use our imagination and creativity. The reality is that in certain parts of the country, such as my home county of Donegal, the Exchequer is not getting any revenue from the 21.5% VAT rate that was introduced by the Minister last year. Nobody is selling cars. People are not buying products. There is not much point in collecting 21.5% of nothing. Will the Minister consider this imaginative and creative proposal?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am grateful to Deputy McHugh for tabling Question No. 7 and thereby allowing me to correct certain matters that were misrepresented in a recent newspaper article. A report on the implications of cross-Border shopping, which I commissioned on foot of a request made by Deputy O'Donnell at a meeting of the Joint Committee on Finance and the Public Service, was published recently. The report establishes that in 2008, the value of cross-Border shopping was between €350 million and €550 million. It estimates that the potential loss in Exchequer revenues as a consequence of cross-Border shopping, taking VAT and excise yields into account, was between €58 million and €90 million in 2008. In addition to the VAT and excise loss, there was a possible corporation tax revenue loss, tentatively estimated at between €15 million and €24 million. It should be noted that all estimates for corporation tax revenue are provisional and should be seen as indicative of the potential loss involved. If the exchange rate remains close to current levels throughout 2009, it is estimated that the volume of cross-Border shopping in 2009 will be worth between €450 and €700 million. It has a remote connection with the VAT rate in this jurisdiction — it primarily relates to the differential price arrangements between the sterling and euro areas. The estimated loss of VAT and excise receipts to the Exchequer resulting from that will be between €72 million and €112 million.

I assure Deputy McHugh that I will examine any proposal that might help to stimulate the economy. Two crucial points should be noted in that context. Differentials in prices between Northern Ireland and this State do not always rate to the tax treatment of those items. Some differentials are rooted in the comparative underlying prices of products in the two jurisdictions. It is important that we address those underlying factors in other ways. It should be noted that the United Kingdom's stimulus package, which involves the reduction of the top rate of VAT in that jurisdiction to 15%, has not succeeded in stimulating the UK economy. It is clear from newspaper reports today that the measure in question has brought the UK into a position of some fiscal exposure. Rather than reversing that country's economic decline, the stimulus package has brought about the depletion of the tax base in the UK.

James Reilly (Dublin North, Fine Gael)
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I came into the Chamber to ask the Minister for Finance a single question. Having listened to him, I am reminded of the lines of a song:

There are more questions than answers

And the more I find out the less I know.

Do I understand correctly that the figure of €700 million to which the Minister referred is the putative loss to the economy — the gross loss, rather than just the VAT loss — in a full year?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Yes. That has been said on many occasions.

James Reilly (Dublin North, Fine Gael)
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The Minister mentioned a newspaper article on this important matter. Many people think cross-Border shopping, which is hurting many people, does not involve people outside Deputy McHugh's part of the country. The traders in Balbriggan could tell Deputies that it is also affecting people in my constituency of Dublin North. I accept the Minister's point that it is not all about tax. If it is clear that our VAT rates are causing a problem, we should reduce them. Specifically, I have twice asked the Taoiseach to consider reducing the VAT rate that applies to the cervical cancer vaccine from the higher rate to the lower rate. An increase of 10 cent in the price of wine, cider, spirits or beer would meet the cost of a reduction.

I accept that the law of diminishing returns applies to tax increases. I am sure some officials from the Irish Cancer Society would love to meet the Minister. I am sure he would look after them. The society has proposed an increase of €2 in the price of a packet of cigarettes, principally to reduce consumption. Such a move might cause the law of diminishing returns to apply not only to the tax take but also to the number of heart attacks and cases of cancer. Will the Minister remove cigarettes and other forms of tobacco from the consumer price index?

Brendan Howlin (Wexford, Labour)
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The Deputy has moved well beyond the scope of Question No. 7. I will allow some latitude on a Thursday evening.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Deputy cannot have it both ways. If he is concerned about the impact of shopping in Northern Ireland on his constituents and on various sectors of our economy, he must realise that Northern Ireland's major pull factor is the sale of alcohol and cigarettes. All traders in Border counties will advise that fundamental point. If I propose an increase in excise duties on 7 April for the approval of the House, Deputies will have to carefully assess the impact such a measure would have on Exchequer revenue and on the degree of shopping that takes place outside this jurisdiction. It is clear——

James Reilly (Dublin North, Fine Gael)
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The housewives of Ireland do not go to the North to buy alcohol and cigarettes.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am not suggesting——

James Reilly (Dublin North, Fine Gael)
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They go there to get staple goods for their families and their children.

Brendan Howlin (Wexford, Labour)
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I ask the Deputy to allow the Minister to respond to his questions.

James Reilly (Dublin North, Fine Gael)
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I will but I cannot let him away with what he has said.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Joint Committee on Finance and the Public Service did a great service to the State when it insisted that a more scientific study of this matter should be undertaken. That study was done. A question on the number of visits people make to Northern Ireland is to be included in the quarterly national household survey. It is important to get an accurate scientific handle on this phenomenon. The evidence available to us to date, which is subject to correction, suggests that the purchase of cheap alcohol is the primary pull factor. I accept that the other main pull factor — the price of baby products — was mentioned by Deputy McHugh. We are beginning to identify the precise products that are creating concern.

Joan Burton (Dublin West, Labour)
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Does the Minister, as a distinguished senior counsel, know much about the psychology of shopping? I will tell him a little about what happens when one looks at the prices of jackets and dresses in the British multiples on Grafton Street. Although sterling and the euro are very close, one can pay up to 40% more because the differences in sterling are not being passed on, particularly by the high street chains and the large grocery multiples such as Tesco. They can talk all they like about price reductions but the women of Ireland know that the price reductions are not being passed on.

Would the Minister ever go shopping? Would he take his Cabinet colleagues with him shopping? Would he say to people in Ireland, and get RTE to follow him and broadcast it on the "Six One News", that there are many products in the Republic to which no VAT applies and still we are paying more for them than we are paying for them in the North of Ireland where VAT is actually applied on a wider basis? In order to instill some confidence and encourage people to go back out shopping for value, could he crack the whip?

Brendan Howlin (Wexford, Labour)
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I will allow Deputy Bruton a brief final supplementary.

Richard Bruton (Dublin North Central, Fine Gael)
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Against the background where the Minister was reported to have indicated that he felt he had made a mistake in increasing the VAT rate in the budget, would he consider the sort of suggestions put forward by Deputy McHugh of maybe selecting products that are particularly vulnerable and applying the lower rather than the higher rate of VAT to them?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I will not divulge any budgetary proposals at this stage. There was no reporter present at this meeting. What I said was that in the light of the fact that the Chancellor in the United Kingdom introduced a change after my budget, I felt somewhat contrite about the change that I had introduced.

Joan Burton (Dublin West, Labour)
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I thought he said it was a disaster.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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That was all I said on that occasion.

Kieran O'Donnell (Limerick East, Fine Gael)
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It was a mistake.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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That is all I am prepared to say at this stage as well about the budget.

Joan Burton (Dublin West, Labour)
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Will the Minister go shopping?

Brendan Howlin (Wexford, Labour)
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Ceist Uimh. 8 in ainm an Teachta Noel J. Coonan, le do thoil.

Richard Bruton (Dublin North Central, Fine Gael)
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A firm act of contrition must be accompanied by a resolve to correct the mistake, is that not the case?

Brendan Howlin (Wexford, Labour)
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A firm purpose of amendment.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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We must safeguard our revenue as well.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Minister would feel better.

Richard Bruton (Dublin North Central, Fine Gael)
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A firm resolve to amendment, is that right?

Brendan Howlin (Wexford, Labour)
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A firm purpose of amendment, yes.

Deputies:

We all can make mistakes.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The firm promise of amendment. I will give a firm promise of amendment all right but I can tell Deputy Bruton that the United Kingdom has had a very unhappy experience in the reduction of VAT rates.

Brendan Howlin (Wexford, Labour)
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Ceist Uimh. 8.

Kieran O'Donnell (Limerick East, Fine Gael)
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So have we.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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We have had an unhappy experience due to the increase.