In the run-up to any budget I would consider changes to all forms of taxation, including indirect taxation. It was suggested that consideration should have been given to reducing the rate of VAT by 1% in the last budget – Deputy Noonan may have made the suggestion – to compensate for increases in the price of tobacco and other products.
It is my view that in buoyant economic conditions when people have a great deal of disposable income, retailers would be tempted to retain the profits from a 1% reduction in the rate of VAT. Given that the market is so buoyant, customers are not necessarily as price sensitive as they would be if the economic situation was different. Furthermore, some of those who advocate reductions in excise and VAT rates as a solution to inflation also state that there is too much demand in the economy. Reducing the rate of VAT or excise duties, which leads to increased demand in the economy, would have no effect other than creating a distorted blip on the CPI.
I am not stating that I will not consider these areas in the run-up to the budget in December. However, I find it difficult to believe that in times of buoyant economic conditions it would be appropriate to reduce the rate of VAT to reduce the consumer price index. These matters will be considered before the introduction of the budget. I am merely laying down my markers at this stage.