Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context

Question 186: To ask the Minister for Finance his views on the issues raised by an association (details supplied) in the context of the forthcoming Finance Bill; and if he will make a statement on the matter. [15289/09]

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

I am conscious of the difficulties being encountered in the farm machinery business in conjunction with other businesses, however, given the current Exchequer deficit position, the Budget 2009 policy decision of increasing the standard VAT rate continues to be necessary in order to support the public finances. We are borrowing to fund day to day public services which is unsustainable as future generations will be required to pay higher taxes unless we correct our public finances.

Regarding the differential in VAT rates resulting from temporary reduction in the UK standard VAT rate from 17.5% to 15% up to the end of 2009, as recognised by the farm machinery industry in their correspondence, the VAT rate is not the only factor in the price differential between North and South of the border. The weakening of sterling has had, and is having, a far more significant impact on relative prices than any VAT changes in this regard.

As a small open economy, many of our standard rated goods are imported, and cutting the VAT rate could benefit the economies from which we import more than our own. In other words, while, it might help the consumer, it would not be the most effective way of helping our own economy.

Regarding the validity of VAT registration numbers, this forms part of the checks carried out by Revenue officers, including with their counterparts in Revenue & Customs in the UK, and in Northern Ireland in particular, in connection with audits and assurance checks where risk or suspicions arise. These checks are carried out using the EU VAT Mutual Assistance Programme, which is designed specifically to tackle cross-border VAT fraud. This programme allows for exchanges of information between EU Member States in relation to VAT matters and also allows the presence of officials from a Member State in another Member State while enquiries are being carried out. These are VAT anti-fraud measures and Ireland plays a full role in the exchange of information with all other Member EU States, including the UK, with whom we have a good working relationship.

Checks of the control procedures in place between the State and Northern Ireland will continue as part of Revenue's work programmes in 2009. Revenue will continue to liaise, as appropriate, with the competent authorities in Northern Ireland, under the EU Mutual Assistance programme. Any specific allegations regarding the abuse of VAT numbers will be investigated fully. Regarding to the availability of financing, the Deputy will be aware that as part of the recapitalisation package announced on 11 February 2009, Allied Irish Bank and Bank of Ireland reconfirmed their December commitment to increase lending capacity to small and medium enterprises (SMEs) by 10%. AIB and Bank of Ireland have also committed to public campaigns to actively promote small business lending at competitive rates with increased transparency on the criteria to be met. Compliance with this commitment will be monitored by the Financial Regulator. The banks will make quarterly reports, with the first report to end March 2009 to be submitted by end April 2009.

Government Departments and State agencies have engaged with banks and business representatives in a variety of settings on issues surrounding the flow of credit for business. A formal structure for those contacts on an ongoing basis will be finalised shortly.

An independent review of credit availability, funded by the banks but managed jointly by the banks, Government and business representatives is also underway and will be completed shortly. Amongst the issues covered by this review will be changes in bank lending, repayment terms and a comparison with customer experiences prior to the onset of the financial crisis. I am satisfied that this review, along with the quarterly reports from the recapitalised institutions, will give a clear picture regarding the flow of credit in the Irish economy, which will inform future policy.