Tuesday, 29 March 2011
Question 30: To ask the Minister for Enterprise; Trade and Innovation the analysis done by him on the effects of the measures included in the Programme for Government on businesses in the border counties; the actions he will take to increase the competitiveness and viability of enterprise in the border counties, in view of the fact that measures included in the Programme for Government, including increasing the top rate of VAT to 23% will encourage persons to move across the border to avail of goods and services and will thus put pressure on business in the border counties; the estimated loss of turnover and jobs in the border region from increasing the top rate of VAT; and if he will make a statement on the matter. [6031/11]
The programme for Government is a national programme, aimed at fixing the banking system, restoring growth and confidence to the economy and supporting the protection and creation of jobs. As Minister with responsibility for jobs, enterprise and innovation, my objective is to create the conditions across all sectors of the economy and in all regions – including the Border region - to facilitate job creation. In this context, and in collaboration with my colleagues in Government, I will identify cross-government actions that can be taken to cut costs to business, remove obstacles to employment creation, and stimulate the domestic economy.
The reference which the Deputy makes to the top rate of VAT is only one aspect of the Government's wider fiscal policy in the programme for Government which seeks to address overall fairness in the tax system for individuals and business alike. The Deputy will know that part of the programme agreed between the previous Government and the EU-IMF was to increase the VAT rate over time. As well as limiting the top rate of VAT at 23%, the programme for Government undertakes to cut the 13.5% rate of VAT to 12% up to the end of 2013, to help labour-intensive economic activity; to maintain the corporate tax rate at 12.5%; to halve the 8.5% rate of employers' PRSI to the end of 2013 on those low-paid jobs paying up to €356 per week; and to implement a number of sectoral initiatives in areas that will create employment in the domestic economy. These include the travel tax and other elements of the Government programme such as improving access to research and development credits, a partial credit guarantee scheme for small business and many other proposals. The programme for Government must, therefore, be seen as an overall package of measures to stimulate growth across the economy and across all regions.
The issue of cross-Border shopping, which was evidenced a number of years ago, was influenced by a variety of factors, including the euro-sterling exchange rate and high inflation in the Republic of Ireland. These factors no longer apply with the same force as the euro is weaker against sterling and inflation is now higher in Northern Ireland than in the Republic.
I would point out to the Deputy that the Programme for Government includes a commitment to work for greater economic co-operation with Northern Ireland to accelerate the process of recovery and the creation of jobs on the island. Businesses in the Border counties, in particular, are well placed to benefit from such co-operation. In this context, my Department supports the work of InterTradeIreland, which assists SMEs across the island to develop North-South trade and business development opportunities. In addition, my Department's agencies, including Enterprise Ireland and the county enterprise boards, will continue to work with companies in the Border region to improve their competitiveness, productivity and viability.
Ba mhaith liom freisin comhghairdeas a gabháil don Aire mar gheall ar a phost nua. Is mór an dúshlán é agus tá súil agam go n-éireoidh leis.
I refer to the Border region. The population of the six counties to the south of the Border is half a million people while approximately 800,000 people live in the five counties just north of the Border. This is a total of 1.3 million people, a not insignificant number comprising roughly 21% of the total population of the island. Due to partition, this region has become a zone of economic uncertainty. We all currently live in a zone of economic uncertainty called Ireland but the people living in these specific areas have to deal with further uncertainties. Over time there will be swings with regard to taxation and the Minister in his reply alluded to swings with regard to currencies and inflation. In the past, one side of the Border had become a boom area and had unfair competitive advantages while the other side of the Border has become a ghost area.
Last January the English Government increased the VAT rate from 17% to 20%. If we had maintained our commitment to a 21% VAT rate, we would have near VAT harmonisation on the island of Ireland. The decision to increase the VAT rate will be detrimental to the Border economies and it will result in real outflows of shoppers, retail trades and funds across the Border. The effect will be felt in the Border counties and also down as far as County Meath and Dublin. Has the Minister the figures for the potential loss of revenue resulting from increasing the VAT rate? How many jobs will be lost as a result of this initiative?
I must first thank the Deputy for his good wishes which are very much appreciated. I recognise the problem described by Deputy Tóibín that people living in the Border region have to deal with currency movements, differences in tax regimes and in inflation rates and these are serious problems for them. A Government which is committed to finding an extra €9 billion through either tax increases or savings, will have to look at unpalatable options. That commitment has to try to balance different needs. In envisaging a cap on the VAT rate, we are also envisaging immediate changes in the tax mix in order to help competitiveness. I refer to the cutting of employers' PRSI contributions which will improve another dimension of the tax mix for those competing across the Border. The reason a cap exists in this regard is because we recognise there is a constraint. Serious problems arose when the gap was very wide.
On the question of estimating the impact, such estimates are not available to my Department. In February 2009 the Revenue Commissioners and the CSO prepared a report attempting to calculate the value of cross-Border trade at that stage. They had an estimate of, I believe, €350 million to €500 million going across the Border. Obviously that waxes and wanes with currency and tax issues. Clearly there are swings and roundabouts. For example, while the excise duty on whiskey is higher in the South, it is lower on beer, petrol and diesel. The Minister for Finance is always conscious of the impact on cross-Border trade when trying to make those difficult balancing calls.
My party is seeking to bring fiscal powers pertaining to the North of Ireland back to this island. Would the Minister consider trying to eliminate those swings and roundabouts over the years by working with the Administration in Stormont on harmonising the taxation rates on both parts of the island? The Minister mentioned the plan for the jobs budget a number of times. The ESRI estimated that 50,000 people will emigrate from this State over the next while.
I accept that the challenges are huge, but the clear commitment of Government to introduce something in the first 100 days shows a serious sense of urgency in this regard. Equally the Deputy will be aware that we need to design workable proposals and time needs to be taken to ensure these are effective.
The notion that we ought to harmonise our tax regime with Northern Ireland, the UK or other countries raises many issues. Ministers for Finance need to cater to the needs of the day and need to strike a balance. Those who seek to make similar decisions have other considerations. Preserving independence in setting tax policy is an important element of the way in which we manage our affairs and I do not believe harmonisation would be on the cards, but there certainly would be consciousness of the impact on Border regions.