Dáil Éireann Debate, Wednesday - 18 April 2012
44 Deputy Mick Wallace asked the Minister for Finance if he conducted a cost-benefit analysis on the VAT rate change from 21% to 23% for the first quarter of 2012 and the way it compares with the first quarter of 2011; and if he will make a statement on the matter. [19317/12]
View answerAt Budget time, the Government carefully considered the various options open to it in terms of taxation. One of the key objectives of the Government is to get people back to work. The VAT rate change was implemented in order to deliver additional revenues for the Exchequer, as must be done if we are to continue to reduce the deficit in our public finances. Government also recognised however that 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.
Notwithstanding that the VAT rate change implemented in the Budget was estimated to deliver an additional €560 million in revenues in 2012 in static terms, the Budget 2012 forecast for VAT receipts, at €9,995 million, represented just a €254 million or 2.6 per cent increase on the 2011 outturn. This is because the imposition of a budgetary adjustment package, of which the VAT rate change is one element, has negative economic implications in the short-run. It takes money out of the economy.
The VAT rate change and indeed other factors such as uncertainty and balance sheet rebuilding are expected to impact on household spending with consequential negative implications for tax receipts. This is the negative economic buoyancy from the imposition of consolidation.
At the end of March €3,291 million in Exchequer VAT receipts had been collected, a €182 million or 5.8 per cent increase on the same period last year. This is a solid start to the year in terms of VAT collection but we must acknowledge that March is the first month to reflect the direct impact of the VAT rate increase. This is because receipts paid to the Exchequer in January and February related primarily to activity in the November/December 2011 trading period, when the rate increase was not in place. That said, it is the case that VAT receipts in the month of March alone were €152 million higher than in March 2011.
