Finian McGrath (Dublin North Central, Independent)
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Question 136: To ask the Minister for Finance if he will reduce the VAT on all energy upgrades and repairs in private homes to 5% in order to generate employment. [43956/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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EU VAT law, with which Irish VAT law must comply, does not permit reductions in VAT, for environmental or other reasons, that would create a distortion of competition between similar goods or services. The EU Commission undertook a study of the possibility of using reduced VAT rates as a tool to support the climate change agenda. While Ireland expressed support for such a study, the EU Council of Finance Ministers decided in 2009 not to allow reduced VAT rates as a tool for achieving environmental policy objectives. In general it was considered that if assistance was required, providing it through direct expenditure measures was the better approach to adopt. In this context, the VAT reduction proposed by the Deputy would have to apply to repairs, maintenance and improvements in all situations and not just those related to energy efficiency. Reducing the VAT rate on the repair, maintenance and improvement of private housing in general to 5% would alone cost some €270m in a full year. This would have significant implications for Exchequer revenues which are difficult to justify in the current economic climate.

Furthermore, introducing a VAT rate of 5% on energy upgrading would entail the introduction of a second reduced rate of VAT. This would render a VAT system that is complex, even more so, increasing the number of VAT rates in Ireland to five. Were a new reduced rate of 5% to be introduced, there would be calls for all goods and services that currently apply at the 13.5% rate to be charged at the new lower rate. For example if only half the goods and services currently subject to the reduced rate of 13.5% were to be moved to a 5% rate the cost to the Exchequer would be around €1.1bn in a full year.