Eamon Gilmore (Dún Laoghaire, Labour)
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Question 109: To ask the Minister for Finance if his attention has been drawn to the findings of a report, The Distributional Impact of Ireland's Indirect Tax System, published in May 2006 by the Combat Poverty Agency which showed that the indirect tax system is regressive, with households in the lower decile paying out 21% of their income in indirect taxes while households in the top decile pay out 9.6% of their income this way; the action he will take regarding the report's recommendations to ensure progressivity elsewhere in the tax system; and if he will make a statement on the matter. [19267/06]

Ciarán Cuffe (Dún Laoghaire, Green Party)
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Question 147: To ask the Minister for Finance if he intends to take steps to reform VAT or excise duty in view of the findings of the recent Combat Poverty Agency study which showed that those in the bottom tenth of income earners pay more than 20% of their gross income in indirect taxes while those in the top 10% pay less than half that amount. [19207/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I propose to take Questions Nos. 109 and 147 together.

I reject entirely the Deputies allegations about the role and equity of the indirect tax system. A simple look at the facts will show that the conclusions in the report referred to are misdirected.

Firstly, there is no VAT on the main low income items such as food, oral medicines, children's shoes and clothing. Secondly, most excise revenue (60%) comes from excises on petrol, diesel and cars. These are not items that low income groups spend most on. As far as the remaining 40% of excise revenue, this comes from duties on tobacco and alcohol where there are solid health grounds for using the tax system to discourage consumption.

Thirdly, there are special reliefs in the VAT and Excise system for medical and other equipment for the disabled. There is no VAT on public transport and diesel used in buses and trains is subject to reduced rates of excise. Most public services are not liable to VAT.

Furthermore the report referred to is simply wrong when it claims that we are relying more on indirect taxation now than in the past as the following table will show.

In fact, we are relying far less on indirect taxation than before, with the gap being made up by greater revenue yield from company tax and taxes on capital and property.

The Report, in my view misses many of the big issues in indirect taxation. In fact, every effort is made, as far as EU law will permit, to reduce the incidence of VAT and Excise on low incomes, but, by their nature, such taxes are not direct taxes on income (this is why they are called indirect taxes) and cannot be easily related to one's ability to pay, however good one's intent. If one wishes to off set any claimed distributional effects, the proper focus is more on the expenditure side of the Budget.