Michael Healy-Rae (Kerry South, Independent)
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Question 59: To ask the Minister for Finance if an estimate has been provided for the loss of revenue to the State due to cross-Border shopping in each of the years from 2009 to date in 2011; his views on whether retail businesses along the Border will suffer severely as a result of the increase in VAT rate; and if he will make a statement on the matter. [38198/11]

Michael Noonan (Limerick City, Fine Gael)
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I am informed by the Revenue Commissioners that a number of studies have been undertaken in the last few years to determine the level of cross-Border shopping and how much this affects Exchequer revenue. The Report on the Implications of Cross Border Shopping, which was undertaken on behalf of the Minister for Finance by the Revenue Commissioners and the Central Statistics Office, was published in March 2009. This was followed on 4 December 2009 by the results of a survey of cross-Border shopping as part of the CSO Quarterly National Household Survey (QNHS) conducted in Quarter 2, 2009. On 12 November 2010, the results of the QNHS cross-Border shopping survey for the year to Quarter 2, 2010 were released. The report undertaken by Revenue and the CSO estimates the value of cross-Border shopping in 2008 in the range of €350m to €550m and the potential loss in VAT and excise revenues at between €58m and €90m (for reference, the higher estimate represents 0.4% of the total VAT and 0.6% of excise revenue in 2008). In addition to the VAT and excise loss, there is a possible corporation tax revenue loss that is tentatively estimated to be in the range of €15m to €24m. However, it should be noted that all estimates for corporation tax revenue should only be considered as indicative of the potential loss given the difficulties in calculating a figure for the direct impact of cross-Border shopping on such activities.

Total household expenditure on cross border shopping in Northern Ireland between Quarter 2 2008 and Quarter 2 2009 is estimated at €435 million. The combined VAT and excise revenue loss is estimated at €63m and a possible corporation tax revenue loss in the range of €19m.

The results of the report for Q2 2010 indicate that 14% of households in the Republic made a shopping trip to Northern Ireland in the twelve months to Q2 2010, compared to 16% in the previous year. While there was an increase in cross-Border shopping in the Border area from 41% to 43% over the year; there was a marked decrease in shopping activity by people from Dublin, where 15% made a shopping trip in 2010, compared with 21% in 2009.

The QNHS also showed that the majority of trips involved purchases of groceries, alcohol, clothing and durables, similar to the previous year. The report estimated that the total expenditure in the year to Q2 2010 on cross-Border shopping trips at €418 million, reduced slightly from €435 million in the previous year. Based on the data contained in the survey, Revenue has estimated that the VAT, Excise and Corporation Tax losses in this period due to cross-Border shopping was in the region of €80 million, a similar level to the €81 million the previous year and suggesting that the level of cross-Border shopping had stabilised.

The statistics in the QNHS Reports were broadly in line with the results of the March 2009 Report on the Implications of Cross Border Shopping, which noted that the main causes of price differentials between goods in Northern Ireland and the Republic were operating costs, profit margin (mark-up), taxes and a significant depreciation of Sterling against the Euro. While variations in the VAT rates widened some price differentials, their impact remained small compared to the significance of the change in the exchange rate.

In the 2010 Budget excise duty on alcohol was reduced by around 20%. In addition, with the increase in the UK standard VAT rate from 15% to 17.5% in 2010 and to 20% on 4 January 2011, there is currently only one percentage point difference between the standard VAT rate in Ireland and the UK, having reduced from 6.5 percentage points in 2009. With the proposed increase in the Irish standard VAT rate to 23% that differential will increase to 3 percentage points. However, it must be pointed out that for most of the last two decades there was a differential of 3.5 percentage points between the VAT rates of both jurisdictions (with Ireland at 21% and the UK at 17.5%).

However, as the CSO and Revenue studies indicates, fluctuations in the exchange rate between Sterling and the Euro represent the most significant influence in relation to cross-Border prices. In this respect, the current exchange rate between Sterling and the Euro should provide less incentive for people to shop outside the State, despite proposed increase in the Irish VAT rate.