Pearse Doherty (Sinn Fein)

I move recommendation No. 5:

In page 122, line 21, to delete "21.5 per cent" and substitute "19 per cent".

This recommendation deals with the 0.5% VAT increase that is proposed by the Government in this Bill. It could be argued that a 0.5% change in VAT will make little difference, but we have an option in this Bill to help the retail sector in the State. When the Government announced the increase in VAT, I was quite taken aback. VAT is one of the most unequal forms of taxation the State applies. Everybody has to pay VAT regardless of his or her income. Those with less income have to buy the same types of produce as those who are very wealthy. The VAT increase will simply take more money from the weekly budgets of Irish families. It will push more people to try to find cheaper products, including food and other basic items. It is easy to call on the public to be patriotic and to shop locally. As people lose their jobs at phenomenal rates, they will look for cheaper products. Belts are being tightened as people try to balance the books of their family homes. The decision to proceed with this increase is even more bizarre when one considers that VAT receipts have already decreased by €2.1 billion. It does not make any sense to me.

The huge disparity between the rates of VAT that apply on either side of the Border has a real influence on people when they are deciding where to do their shopping. The effect of this problem is not just being felt in the Border counties. People in this House have told me they have travelled up the M1 and across the Border to do their Christmas shopping and would do so again. When one hears about the savings that can be made, who can blame them for doing so? The staff of this House and other people are willing to travel more than 100 miles, from Dublin and further afield, to cross the Border and avail of the lower prices. I accept that such disparities cannot be solely attributed to VAT. In my Second Stage speech, I referred to the price differences in shops and retail units like Dunnes Stores and Next. While the VAT issue is not the only contributing factor in this context, the disparity in VAT is having a major impact and is contributing to people's decisions to shop on the other side of the Border.

If we are to enable middle and low income families to pump much-needed money into the economy, we will have to reduce the rate of VAT, which is something my party has been demanding for some time. There is an onus on the Government to deal with this issue. We need to standardise the rates of taxation across this island. The decision of the British Chancellor of the Exchequer to reduce the rate of VAT in Northern Ireland had an immediate effect on Border towns that had built up a retail base, such as Letterkenny, County Donegal and Dundalk. I heard last year that the Next outlet in Letterkenny was that company's biggest earner in any part of the world. I am not sure whether it was taking in more money than any other outlet, or was making a greater profit, but it was rewarded for the way things were working out for it. There were different factors at play last year. The prices of sterling and the euro were different and there was not such a disparity between the respective VAT rates. The Next outlet in Letterkenny will definitely not have such a good year this year. Today, things are going well for retailers in Derry, Belfast and other towns in Northern Ireland. Tomorrow, things might go well for Letterkenny, Dundalk, Dublin or Cork. It is not good to have such instability in the retail sector. We need to consider the harmonisation of VAT rates across the State.

This Bill gives the Government an opportunity to intervene to help the retail sector. Figures published by the Central Statistics Office indicated that retail spending decreased by 7.7% in October, which was before the British Chancellor of the Exchequer reduced the VAT rate in that jurisdiction by 2.5%. The October figures were the worst since 1984, which is almost 25 years ago. The figures for November and December will be even worse. There is an onus on the Government to step in and do something positive in this regard. When the Tánaiste was asked how she intended to assist the retail sector, she responded by pointing out that she does not own a shop. It was an appalling answer. She said that the Government is not a shopkeeper and suggested that shops should reduce their prices. The Tánaiste is the second most powerful person in the Cabinet. The Government is sitting on its hands as the retail sector goes down the swanee. We need to step in.

In this recommendation, I propose that we should reduce the rate of VAT to 19%, rather than following the Government's plan of increasing VAT and thereby reducing consumer spending power. If we adopt a 19% rate, we will not harmonise our rate with the rate in Northern Ireland, but it will suffice as an interim step. It would allow people to shop and provide a better playing field. In such circumstances, purchases would represent an investment in the economy as well as a spin-off for the retail sector. More goods would be manufactured and more people would remain in employment, or enter employment in this area. The Government needs to seriously consider this proposal. It is not an option to stand still by retaining the 21% rate. We need to reduce it. The Government's decision to increase the rate of VAT does not make any sense.