(Limerick East): On this group of Financial Resolutions I should like to deal first with Financial Resolution No. 17 on value-added tax. There is much rhetoric on budget day but in anything I say about this, I may, if anything, be understating the position. I understood there was a commitment over the past four years or so that changes in VAT rates operated within their own loop, to use the kind of computer terminology, and that any increases in a rate would be dedicated to a reduction of the standard rate. The expectation was widespread that the Minister would increase the 12.5 per cent rate across a tranche of items to 15 per cent or 16 per cent. Eventually he increased it to 16 per cent. Everybody, both in here and outside, from the professions and in business, expected that yield to be dedicated to a reduction of the 22 per cent to 21 per cent downwards, perhaps to 19 per cent. It is a total breach of trust and of the spirit of what the Minister's predecessor said in the House to increase the 12.5 per cent rate to 16 per cent and to transfer the yield out of the VAT loop and use it for other purposes in the budget. That is outrageous. The only circumstances that changed were that last year Mr. John Major's Government in the United Kingdom increased their standard rate of VAT to 17.5 per cent, rendering the task of the Irish Government in harmonising with our nearest neighbours easier. It appears to me that again we are being led by the nose by the British. There is the disposition in this country to proclaim our independence to high heaven in the loudest and most strident way but then to ape the British at every chance we get. It appears to me now that the Minister and his Department have reneged on the commitment to bring the standard rate of VAT down significantly, simply because the British raised their rate.
The studies on leakage of trade across international boundaries would suggest that plus or minus 2.5 per cent on a VAT rate would not lead to any leakage. On that basis if, next year, the Minister brings the top rate of VAT down to 20 per cent, and the British hold their rate as it is, there will be no leakage and he will achieve that prevention of leakage of trade but it is not harmonisation. In the interests of job creation I would suggest a significantly lower standard rate of VAT would have a major impact on commercial and business life. Yet there is here a major missed opportunity. This reverts to the discussion we had on the last group of Financial Resolutions. Again this is ideologically-driven; the Progressive Democrats would not give on their pigheaded attitude towards marginal rates of income tax and that had to be funded when it could not be funded from the abolition of reliefs within the income tax code. Therefore there is a transfer of resources arising from a more stringent imposition of indirect taxation dedicated to a reduction in the marginal rates of income tax. Certainly it is bad economics; perhaps it is also bad politics.
The other matter to which I object is that there was a commitment on all sides of this House that we would simplify the VAT code and, in line with our European partners, we would go for two rates; we would have a standard rate at a harmonised level, of something around 15 to 17 per cent and we would have a lower rate on socially or politically sensitive items coming in between 4 per cent and 9 per cent; that was Government policy. Look what has now happened. Instead of moving towards two rates we have moved in the opposite direction. We now have six rates. For example, there is a zero rate, a 2.7 per cent rate for the agricultural community; a 10 per cent rate; a 12.5 per cent rate; a 16 per cent rate and a 21 per cent rate. How does that comply with the commitments given by the Minister's two predecessors to simplify the code, to harmonise the levels in line with our European partners and end up with two rates, a lower and a standard rate? This defeats all reason. It is an extraordinary complication of the VAT code. Indeed it is a robbing of the resources of the VAT code which should be properly dedicated to reducing the 21 per cent rate to be used for other purposes.
It is an absolutely outrageous proposal on any grounds, on fiscal, economic and, I would suggest, on political grounds. If there was to be anything in this budget to generate activity which would lead to extra employment it would seem to me to be to reduce the standard rate of VAT by, say, two points. The budget is mildly expansionary. The Minister is spending a little more than twice the rate of inflation but the manner in which that spending is taking place will not generate any extra demand. This was an area within which there was a possibility within our economy to generate extra demand by reducing the standard rate of VAT. The Minister has missed that major opportunity which has been a great mistake.
With regard to credit cards, we were over this hill before when Commissioner MacSharry was Minister for Finance — I forget what was the then imposition, I think it was £10. It is now £2. Two pounds is not very much but it does run counter to the stated intention of both the Government and banking community to move towards a greater use of technology in the dispensing of cash in particular. The cash card is carried by many students. While £2 may not be much of an imposition on a cash card carried by a student I have an objection in principle to it because, in many circumstances, students are compulsorily required to carry an ATM card. The European Social Fund grants to regional colleges — which will henceforth be means-tested under another contrary decision on the part of the new Minister for Education, a silly decision which is another day's work — are paid through banks and recipients of those grants are required to have an ATM card. It is peculiar. I cannot see where is the gain. Two pounds does not appear to be an enormous yield. When the charge was introduced previously there was a feeling that the banks were not paying sufficient by way of the bank levy and it was another way of taking a skim from them but, of course, the banks would pass it on to the consumer anyway when issuing the cards.
On this occasion a major section of the budget is dedicated to commitments by the Minister to replace the bank levy with a more equitable regime of corporate tax which would apply to the banks. A large section of the budget speech deals with this matter and, in the meantime, the banks will pay an amount by way of bank levy which will not be less than what they are paying at present. I approve of that. Levies and so on are short term measures and it is better to get them into the general corporate code.
I note the banks are also being charged for security which is being provided by the Army and the Garda Síochána — the yield is expected to be £2 million — for the secure transport of cash around the country. That is fine by me also. I cannot understand why this other niggly item has been included, the suggested yield from which is £2 million. People may have five or six more cards and when that is multiplied by £2 it is not big money. I have doubts about the wisdom of the decision especially in so far as it relates to students and if it will inhibit the movement towards a cashless society in any way for all sorts of reasons of security as well as for ease of commercial transactions. The other items, so far as I am concerned, are Finance Bill items which I intend to return to when we debate the Finance Bill.
