I would point out that the estimated additional yield from a 2% increase in the standard rate of VAT for 2012, as announced in my Budget 2012 speech, is €560 million. The estimate of €670 million relates to receipts from the 2% increase in a full year. These estimates were calculated by applying a direct increase of 2% to the expected yield from the 21% rate of VAT in 2011. They are "static" estimates in that they do not take into account any behavioural change on the part of taxpayers as a consequence of the rate change. However, the projection for personal consumption in 2012, upon which the Budget 2012 VAT forecast is primarily based, takes account of the rate change along with other factors affecting household spending (such as uncertainty and balance sheet rebuilding). The Budget 2012 forecast for VAT receipts, at €9,995 million, represents a €254 million or 2.6 per cent increase on the 2011 outturn.
Furthermore, the standard VAT rate was increased in the Budget as part of a general package of raising revenues measures to contribute to Exchequer funding and is in line with commitments made in the Programme for Government and in the EU/IMF Programme. As I said when I addressed the Dáil last December, the Government carefully considered the various options open to us in terms of taxation. One of the key objectives of the Government is to get people back to work. Indirect taxes have a less adverse impact on economic activity and employment, which is why Budget 2012 focused on indirect taxes such as VAT rather than on income tax.