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Dáil Éireann debate -
Wednesday, 3 Jul 1991

Vol. 410 No. 3

Ceisteanna — Questions. Oral Answers. - VAT Rates.

Pat Rabbitte


4 Mr. Rabbitte asked the Minister for Finance if, in relation to the agreement reached by EC Finance Ministers at their meeting on 24 June 1991 regarding VAT levels, he will list the items likely to increase in price and those likely to decrease; if he will outline (1) the steps he will take to ensure that VAT decreases are passed on to the consumer and (2) the steps which will be taken to compensate those on low incomes for the increases; and if he will make a statement on the matter.

Mervyn Taylor


38 Mr. Taylor asked the Minister for Finance whether, in view of a recent decision by the EC to agree a minimum VAT rate of 5 per cent, he will reverse the decision he made in the Finance Act, 1991; and if he will make a statement on the matter.

I propose to take Questions Nos. 4 and 38 together.

EC Economics and Finance Ministers reached agreement on the broad shape of the post-1992 indirect tax rates at their meeting on 24 June 1991. The main VAT rating arrangements approved for the community were: a standard rate of not less than 15 per cent; the option of one or two rates below this standard rate, with a minimum of 5 per cent for a restricted list of goods and services; and the possibility of retaining at least for a transitional period extra low rates, including zero rating, in areas where such rates currently apply.

Subject to observing these general Community requirements, final decisions on the actual rates to apply remain the prerogative of individual member states. The level and scope of VAT rates, both standard and reduced, is a matter for the normal budgetary process and I will be examining this matter in the context of the 1992 budget. The House will appreciate that such decisions cannot be taken in isolation from wider issues of tax policy. I must have regard to the cost implications of the total approximation package and to overall budgetary policy. For these reasons, I am not in a position at this stage to indicate to what extent we can avail of the reduced rate options. Items currently low rated which will be liable to the standard rate after 1992 include telecommunications, adult clothing and footwear, personal services, repair and maintenance services and construction other than housing.

I will be consulting my colleague, the Minister for Industry and Commerce, in regard to ensuring that the benefits of any VAT decreases are passed on in lower prices to the consumer. The implications of the net price effects of any rate changes arising for those on low incomes will also be borne in mind in the general budgetary context.

Would the Minister agree that benefits to the consumer in the areas of petrol and drink, for example, have received much publicity and accept that the VAT system is not based on ability to pay and that less exposure has been given to those areas where the consumer will suffer as a result of the meetings of European Community Finance Ministers to which he referred? In particular, I instance the areas of gas and electricity. Does the Minister have any intention of compensating the tens of thousands of people living at subsistence level in respect of the increased costs which will be passed on to them? Is the Minister aware that in this city, for example, where——

Let us have regard to brevity especially at this time in dealing with Priority Questions.

Is the Minister aware the tens of thousands of people in this city who have had to change over to smokeless fuels cannot afford to heat their homes for certain periods during the winter?

The Deputy will have to heed the Chair.

Does the Minister intend to introduce compensation for social welfare recipients in this area?

Under the agreement reached on 24 June a zero rating can be retained for food, children's clothing, children's shoes, footwear and oral medicines.

For how long?

The position will be reviewed in 1996 but that is not to say that it will come to an end at that stage. In relation to the question of different rates moving in different directions, I have always said that tax approximation is not an á la carte menu; some rates will be decreased while others will be increased. That is what happened in the 1991 budget, where some rates were increased while others were decreased. The net effect, however, was that the consumer gained to the tune of £37 million.

The effects of these changes on people on low pay is a matter to be addressed under the social welfare budget. While I accept in part what Deputy Rabbitte said that where people suffer disproportionately from a change we should try to compensate those at the lower end but that should not be done by trying to maintain lower rates so that the people who can afford to pay have the benefit of those rates. It is a matter for compensating those at the lower end. The final determination is a matter for overall taxation and the social welfare provisions of any budget.

Does the Minister agree that the benefit of the VAT changes in the past have not always been passed on to the consumer? What assurances can the Minister give in this regard? Does he accept that the higher than expected inflation figures for the past quarter were to some extent contributed to by the failure to pass on the decreases to the consumer?

The Deputy is only too well aware that that is a matter for another Department, the Department of Industry and Commerce, who have monitored and are continuing to monitor the VAT reductions in this and previous budgets.

(Limerick East): They are doing a very bad job; the reductions are not being passed on.

There were elements in the consumer price index——

A temporary arrangement.

——which might indicate that but I do not have the information available to me. The results of the post-budget monitoring have not been published in full and I am not in a position to comment on them. Aspects of the last consumer price index might indicate margins were being taken but there were also reductions. I expect the inflation rate will come out at the end of the year under 3 per cent and that is what I have projected.

I now call Question No. 5.

To what extent will any changes be in the higher rate——

Please, Deputy Rabbitte, I want to make progress on other questions. I have called Question No. 5.