Vol. 525 No. 1
1 Mr. Noonan asked the Minister for Finance the amount by which he expects the consumer price index to rise, between now and the end of 2000; if he will introduce any measures prior to the budget to combat inflation; and if he will make a statement on the matter. [23808/00]
The latest figures show that headline inflation in September as measured by the consumer price index remained at 6.2% for the third month in a row. These figures show that the Government measures announced last June are working. Those measures were focused on improving competition and price awareness in sectors of the economy where competition was felt to be limited.
As I have stated previously, inflation may exceed the September level in the near term due to the impact of recent increases in oil prices and interest rates. Whether such a rise takes place, and its extent, will depend on a number of factors which cannot be predicted in advance, such as future changes in oil prices and in the value of the euro. However, the upward pressure on the headline consumer price index inflation rate will ease somewhat in December as last year's increase in excise duties on tobacco products falls out of the year-on-year comparison. My Department will publish forecasts for inflation in the stability programme which I will present to the Dáil on budget day. These forecasts will cover the period 2001 to 2003.
As I have mentioned, the Government has already introduced a range of measures to combat inflation. The impact of these measures is being closely monitored and the question of further measures is being considered in the context of the budget. The next budget will contain a balanced set of measures which will take account of prevailing economic conditions and which will be positive in terms of continued economic development and social progress. I will, of course, have regard to the commitments contained in the Programme for Prosperity and Fairness in the context of the strategy for the budget. I have no plans to introduce further measures prior to budget day.
Will the Minister confirm that it is his personal view that the CPI will exceed 7% before it begins to come back down?
I said it was heartening to note that the CPI for the last three months remained at 6.2%, but considering that the largest lending institution in the country increased mortgage rates after the figures were published last month it will put upward pressure on the headline inflation rate due to the weighting of mortgage rates in the overall index. That will be an upward push. On the downward side there may be further competition in other areas leading to a downward movement and I would not be prepared to say at this stage what that is likely to be. I have signalled that mortgage interest rates will have a negative effect on the CPI.
Is the Minister aware that a view has been attributed to him that he expects the CPI will be at 7.3% by November? Will he confirm or deny that figure?
Either in public or private I have never said what I expect the inflation rate to be, not even in the confines of my Department. Even the experts in this area, if not astounded by the outcome, were predicting an upward push but that did not happen. One would therefore be foolish to predict what it is likely to be. I have said that mortgage interest rates are likely to have a negative impact. I have not given that figure or any other to anyone.
I know the Minister is not going to announce the budget now, but in the range of measures he is contemplating, are reductions in VAT and excise on fossil fuels being considered? Is there any external factor such as an EU directive or agreement that would put a floor under any proposal he might make to reduce the standard rate of VAT or excise?
I have said on a number of occasions, both here and to lobbyists, that I have been considering a range of measures including some of the options which the Deputy mentioned. It is only fair to point out that there is a limit to some of those measures and I also pointed this out to some of the lobby groups. Over the past ten years we have come from more or less the top quartile of the matrix regarding excise duties to the middle to bottom range of that matrix. Successive Governments have been very reluctant to make any excise duty increases and the last one was made by my predecessor in 1997. Any changes I have made, small as they may have been, have been to reduce excise duties.
There are EU minima under which we cannot go, which was pointed out by some columnist in the recent debate on the road hauliers' dispute. Furthermore, it is fair to point out that over the past few years, including the period before I became Minister, there has been pressure in the EU for an energy tax directive. The effect of that would be to push up rather than down. Due to objections from a number of countries, mainly Ireland and Spain, no further progress has been made on that so the energy tax directive is currently in abeyance and the floor or minima are set by the EU minima rates of excise.
The Deputy is correct in that there are minima below which we cannot go in terms of excise duty. That restriction does not apply to VAT as it is up to each member state to make its own decisions in that regard. There is a floor but it is a long way from 21%. Other considerations must also be taken into account in this area and the Deputy mentioned some of them in the recent past.
Perhaps the Minister could get his officials to send me a briefing letter on the particulars of the constraints in these areas.
Yes.
The minima and so on. He might also give me some information on restrictions on moving items from one VAT category to another.
That is less complicated. We are constrained from moving anything to zero that was not on the list prior to the 1991 directive.
