Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

Question 101: To ask the Minister for Finance if he will clarify his recently reported comments regarding the increase in the headline VAT rate by 0.5% in budget 2009; the amount this increase was estimated to yield in 2009 at budget time; the amount this increase is estimated will yield in 2009; and if he will make a statement on the matter. [12461/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

As the Deputy is aware, the 0.5% increase in the standard VAT rate from 21% to 21.5% was introduced in the 2009 Budget as part of a general package of revenue-raising measures to fund key public services. The UK Government, as part of a fiscal stimulus package, then reduced their standard VAT rate from 17.5% to 15% on a temporary basis with effect from 1 December 2008 to 31 December 2009.

It would appear that the timing of Ireland's VAT increase, given the subsequent temporary reduction in the UK rate, may have sent the wrong signal to consumers. However, given the current Exchequer deficit position, the Budget policy decision of increasing the VAT rate continues to be necessary in order to support the public finances. It is also evident that the very considerable weakening of sterling has had a far more significant impact on relative prices between this State and Northern Ireland than the changes in the standard VAT rates.

On Budget day, 14 October 2008, the 0.5% increase in the standard VAT rate was estimated to yield €208m in 2009. Reflecting the subsequent further weakening in economic activity, in line with the downward revision of the estimated yield from all taxation heads, the yield in 2009 from the 0.5% increase in the standard VAT rate is now estimated at €164m.