Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Question 52: To ask the Minister for Finance if he has assessed the expected impact of the 0.5% VAT increase on consumer spending and VAT revenue; and if he will make a statement on the matter. [45331/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Budget introduced a general package of revenue-raising measures to fund key public services, one measure of which was increasing the standard VAT rate by 0.5% to 21.5% from 1 December 2008. The VAT increase is estimated to yield the Exchequer €208 million in 2009 and €227 million in a full year.

With regard to assessing the impact of the VAT increase in consumer spending, consumer price inflation is easing, which will help real disposable income. Accordingly, it is not anticipated that there will be any considerable negative impact from the increase in VAT on consumer spending.

Already we are borrowing over 10% of all day to day spending on public services (before capital spending). This is unsustainable and we faced difficult choices in bringing forward corrective measures. The estimated €227m that will accrue in a full year from the VAT increase will go some way towards funding necessary public services.

Some of the goods and services that will be affected by the increase in the standard rate are alcohol, cigarettes, cars, petrol, electrical equipment, furniture, telecommunications, cosmetics, confectionery, soft drinks and adult clothing and footwear. The effect of the 0.5% increase in the standard rate is that the price of goods and services, which apply at this rate, will increase by 0.41%. This equates to an increase of 8 cent on a good costing €20, or 41 cent on a good costing €100.

It must be also be recognised that around half the value of goods and services purchased in the State are not subject to the standard rate of VAT and therefore are unaffected by the change in the standard rate. All Government services, local authorities, hospitals and schools etc., are exempt from VAT. The zero rate of VAT applies to the majority of foodstuffs, oral medicines, books and children's clothes and shoes. In addition, housing, electricity, gas, domestic fuels, restaurant services, and labour intensive services such as hairdressing and shoe repair, are applicable at the 13.5% reduced rate of VAT.