Vol. 425 No. 8
11 Mr. Molloy asked the Minister for Finance if his attention has been drawn to the concern of members of the Flour Confectioners and Bakers Association regarding the current rate of VAT on flour confectionery products; and if he intends to take any action to alleviate the problem which is resulting in increased redundancies in the bakery industry.
38 Mr. E. Kenny asked the Minister for Finance if his attention has been drawn to the fact that 4,000 jobs have been lost in the baking industry since 1980 and that a further 2,000 jobs are at risk in the immediate future arising from the 21 per cent VAT charge on confectionery; the plans, if any, the Government has to sustain jobs in the baking industry; and if he will make a statement on the matter.
69 Mr. Connaughton asked the Minister for Finance if he is aware that there are over 2,000 jobs immediately at risk in the bakery industry; that the 21 per cent VAT on confectionery is seriously damaging exports, particularly to Great Britain and Northern Ireland where the same products are zero rated; and if he will make a statement on the matter.
70 Mr. Deenihan asked the Minister for Finance if he will introduce a VAT rating on confectionery products similar to that which applies in Great Britain and Northern Ireland.
I propose to take Questions Nos. 11, 38, 69 and 70 together.
I am aware of the decrease in employment in the bakery industry in recent years. I am also aware of the views of the Flour Confectionery and Bakers' Association that this decline is attributable to the 21 per cent rate of VAT on flour confectionery and biscuits. However, studies by the sectoral development committee (1990) and the IDA (1987) both highlight a heavy over-capacity in the industry, particularly in the bread baking sector, and indicate that the closures are part of a rationalisation process for a more efficient, market-led industry.
I should point out that bread is zero-rated for VAT and that the standard rate of VAT applies to all flour confectionery and biscuits sold in this country, irrespective of country of origin. Similarly, cakes and biscuits produced in the State and sold in the North are liable to the rate of VAT pertaining there, generally the zero rate. Thus, the VAT treatment is of no relevance to purchasing patterns at trade level; this will reflect consumer preference and relative cost competitiveness at the production level.
Application of the zero rate to flour confectionery and non-chocolate biscuits, that is parity of treatment with Northern Ireland, would give rise to a substantial loss in revenue and, accordingly, consideration of any such measure can be carried out only in the context of the normal budgetary process. Deputies will appreciate that it would not be appropriate for me to detail my budgetary plans at this stage.
May I ask the Minister if he agrees that this industry is in a state of crisis and that there is a serious threat to large numbers of people employed in the industry? Can the Minister give any assurance to the employees in this industry, which has formed a very valuable part of local economy throughout the country, that the Government is concerned about the position and is planning to take some action to alleviate the stress confronting the families whose wage earners were and are employed in this industry? Finally, could the Minister give us his Department's estimates of the job losses so far, and the potential job losses because of the current situation?
I appreciate the points the Deputy is making about the industry. In a previous ministry I spent a lot of time dealing with this industry for one reason or another. Employment has declined steadily in the bakery industry since the early eighties. Unemployment stood at 5,350 last year as compared to 9,390 in 1980, which is a loss of just under 3,950 jobs. The closures and job losses reflect the process of ongoing rationalisation which is taking place all over the country.
That is a nice word for "crisis."
It has gone on for 12 years. It has been looked at in detail. The sectoral development commitee report on the industry predicted that this trend would continue, that the industry was too fragmented and inefficient, there was a change in consumers' tastes and their purchasing powers away from what tended to be the small craft bakery into other areas. Details in both reports are more or less the same. When the zero rating for VAT purposes was introduced for food generally, which included bread, it took that into account. That has been maintained since. The food subsidies were removed some years ago but there is still a zero rate for bread. I have seen some of the arguments and know the industry is going through a difficult time, but that is not because of the VAT position. Products exported to the North, or elsewhere, will be sold there at the rate of VAT in that location; that would be a zero rate in Northern Ireland. If there are products coming in here from the North they will be sold at 21 per cent. I am not talking about bread but about chocolate biscuits, non-chocolate biscuits and other confectionery.
Last year this and other industries were worrying about imports from the North and they asked us to bring in the new VAT regime to make sure that those companies were registered for VAT, and that was done. Any bakeries bringing in products here must charge and register for Irish VAT, subject to the turnover limits that apply to Irish traders. Those figures are small for foreign-based bakeries which do not have a presence here but a supply goes to the State under the distant selling arrangements which I understand, from letters from the bakery industry and Deputy Molloy's questions, are required to charge VAT once their sales in the State exceed £27,000. That is lower than the normal registration limit. That was something we brought in in the 1992 Finance Bill to try to stop those kinds of imports.
The Minister has given us a long litany of the industry's problems. I was hoping the Minister might conclude by offering some hope to those still employed in the industry in regard to what he or his Government might do.
I have a submission from the industry. I do not want to be giving undue hope. You cannot take flour confectionery or the non-chocolate biscuits on their own, you have to look at the other standard rate food items. You are talking about a huge amount of Exchequer money. I have told the industry that we will look at some of the issues raised by them. However, the kind of money involved is excessive.
