Seymour Crawford (Cavan-Monaghan, Fine Gael)
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Question 118: To ask the Minister for Finance the amount of revenue lost to date in 2009 through the exodus of shoppers to Northern Ireland; his views on whether it was a mistake to increase the level of VAT rather than decrease it as was proposed in a Fine Gael motion; and if he will ensure that this mistake is rectified at the earliest possible date; and if he will make a statement on the matter. [19123/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As the Deputy may be aware, the Revenue Commissioners and the CSO prepared a report, at my request, on the Implications of cross-Border shopping for the Irish Exchequer. The report was published on my Department's website on 20 March 2009. The report estimated the likely value of cross-Border shopping in 2009 to be in the range of €450 million to €700 million, with a potential loss in Exchequer revenues arising from reduced VAT and excise yields of between €72 million and €112 million. In addition, a possible corporation tax loss in the range of €20 million to €31 million is tentatively estimated. It should, however, be noted that any estimate for corporation tax is provisional and should only be considered as indicative of the potential loss.

The report noted that there is rather limited availability of quantifiable data on cross-Border shopping, and with a view to improving the data available, Revenue and the CSO have worked on questions to be included in the Quarterly National Household Survey that should facilitate a more detailed assessment of cross-Border shopping in the future.

In addition, the report noted that the main causes of price differentials between goods in Northern Ireland and the Republic, are operating costs, profit margin (mark-up), taxes and the rapid depreciation of Sterling against the Euro. While changes in the standard VAT rates have widened some price differentials, their impact remains small compared to the size of the change in the exchange rate.

The standard VAT rate was increased from 21% to 21.5% in budget 2009 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 its standard VAT rate from 17.5% to 15% on a temporary basis with effect from 1 December 2008 to 31 December 2009. As I have previously stated, 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 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.