Dáil Éireann díospóireacht -
Wednesday, 6 Dec 2000

Vol. 527 No. 4

Financial Resolutions, 2000. - Financial Resolution No. 3: Value-Added Tax.

Tánaiste and Minister for Enterprise, Trade and Employment (Ms Harney)

I move:

(1) THAT in this Resolution–

"Principal Act" means the Value-Added Tax Act, 1972 (No. 22 of 1972); "Act of 2000" means the Finance Act, 2000 (No. 3 of 2000).

(2) THAT–

(a) the rate of value-added tax on the supply of certain goods and services at present chargeable at the rate of 21 per cent be decreased to 20 per cent of the amount on which tax is chargeable in relation to the supply of such goods and services, and

(b) the rate of value-added tax on the supply of livestock and live greyhounds and the hire of horses be increased from 4.2 per cent to 4.3 per cent of the amount on which tax is chargeable in relation to the supply of such goods and services, and

that, accordingly, subsection (1) (inserted by the Finance Act, 1992 (No. 9 of 1992)) of section 11 of the Principal Act be amended–

(i)by the substitution in paragraph (a) of "20 per cent" for "21 per cent", and

(ii)by the substitution in paragraph (f) of "4.3 per cent" for "4.2 per cent" (inserted by the Act of 2000).

(3)THAT the rate of flat-rate addition to the consideration in respect of the supply of agricultural produce or an agricultural service by a flat-rate farmer be increased from 4.2 per cent to 4.3 per cent, and that, accordingly, section 12A (inserted by the Value-Added Tax (Amendment) Act, 1978 (No. 34 of 1978)) of the Principal Act be amended by the substitution in subsection (1) of "4.3 per cent" for "4.2 per cent" (inserted by the Act of 2000).

(4)THAT this Resolution shall have effect as on and from 1 January 2001.

(5)IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).

The resolution provides for a decrease to 20% on the supply of all 21%-rated goods and services such as cars, electrical goods, furniture and furnishes and telecommunications with effect from 1 January 2001. The standard rate was last changed in 1991 when it was reduced from 23% to 21%. The resolution also provides for an adjustment of 4.3% in the level of the flat rate farmer's refund together with a similar change in the VAT rate on the supply of livestock, live greyhounds or the hire of horses.

All goods and services which are currently standard-rated will benefit from this reduction with the exception of tobacco. As already discussed, the excise duty on a packet of 20 cigarettes will be increased by 2.6 pence with pro rata increases for other tobacco products from 1 January 2001. The reduction in the standard rate will cost £159 million in 2001 and £191 million in a full year. The difference in cost is due to the way in which VAT is collected as returns for the fixed VAT period, November to December, will not be received until January 2002.

It would be difficult to introduce a reduction in the standard rate on budget night because VAT is remitted by traders to the State on a two-monthly basis, January-February, March-April, etc., and the most suitable date on which to introduce it is 1 January 2001. The reduction is part of the Government's anti-inflationary strategy. The effect of a 1% reduction after allowing for the increase in tobacco excise is approximately 0.3%.

In addition to the 1% reduction in the standard rate from 1 January 2001 there are also reductions of 2 pence per litre, 2.4 pence VAT-inclusive, in the excise duty on petrol and 6 pence per litre, 7.26 pence VAT-inclusive, in the duty on diesel with effect from midnight. These measures will reduce the CPI by 0.5%.

With regard to the adjustment to 4.3% in the level of the flat rate farmer's refund, these changes will take effect from 1 January 2001 instead of the usual change on 1 March. This is intended to bring the changes in line with the reductions in the standard rate of VAT. The Revenue Commissioners have calculated, on the basis of macro-economic date for the past three years, that a flat rate of 4.3% is now needed to achieve full compensation. This change will cost £2.35 million in 2001.

The flat rate scheme is a simplified and practical method of applying VAT to farming. It compensates unregistered farmers on an overall basis for the VAT charged to them on the purchase of goods and services. This is achieved without applying the normal VAT rules on registration, record keeping and returns. Traditionally, the VAT rate on livestock has been maintained at the same level as the flat rate addition. This is administratively more convenient to farmers and their customers.

Mr. Naughten

I am disappointed the Government has introduced this resolution because it has not gone far enough. Prior to the budget Fine Gael proposed a 2% reduction in the standard rate of VAT from 21% to 19%. Our aim ultimately is to reduce the rate to 15%. We made a strong case for a 2% reduction. The average VAT rate throughout the European Union is 19.5%. The Minister for Finance pointed out in his Budget Statement that there were two reasons for the VAT reduction. The first was to alleviate the pressure on the CPI and the Tánaiste said there would be a 0.5% reduction.

The second reason was to encourage the development of e-commerce. Ireland has prided itself on the fact that it has been a low tax economy attracting foreign investment and promoting the development of indigenous industry on that basis, yet despite the reduction in VAT, the rate is still above the EU average. That is why Fine Gael is opposed to it. We believe e-commerce should be encouraged, developed and promoted in Ireland and that Ireland should become a European e-commerce hub. We should aim to reduce VAT below the EU average initially and ultimately to reduce to 15% over time. That should have been done in the budget to achieve the aim of becoming the European centre of e-commerce. The Minister was sadly mistaken in stating the reason for the VAT reduction was the development of e-commerce.

Software and digital services are easily traded over the Internet. Unless Ireland has a low VAT rate, VAT payments will not be made to the Exchequer because it is difficult to trace such transactions. If we had a low VAT rate, we could ensure such payments were made. Another issue is the difference in the VAT rate applied to digital products within the EU and outside it. An Irish company must pay VAT at the Irish rate if it exports digital products for sale in the US, yet VAT is not applied to US products sold over the Internet to Irish and EU customers. Irish and European industry is being discriminated against on those grounds. I hope a level playing pitch is created whereby VAT will not be charged on products exported by the EU but will be charged on US products imported by European countries.

The 0.1% increase in the flat rate VAT refund is an insult to farmers and the agriculture industry, especially given the current crisis in the industry. Farmers have their backs to the wall. The food industry will have its back to the wall as a result of the crisis in the beef industry, which my colleague, Deputy Noonan, highlighted earlier. It is a gross miscalculation by the Government to have ignored indigenous industry which is the backbone of the economy and of the regions. It is extremely hypocritical of the Government, which speaks of developing the regions, not to come forward with proposals for the indigenous food industry and agricultural production which will be in a severe crisis in coming weeks.

Will the Minister give a commitment that the reduction of 1% in VAT will be passed on to the consumer given that the Competition Authority is not adequately resourced? The Minister tried to clarify a point made by Deputy Noonan when he referred to the many vacancies in the Competition Authority. As that was the last response I received from the Minister on that, perhaps she could inform us if that has changed. It was not clarified by her colleague representing her yesterday at the joint committee meeting who ignored the issue of the under-resourcing of the authority. The authority can regulate this VAT reduction and can ensure it is passed on to the consumer. The aim of the proposal is to tackle inflation.

However, the measure has not gone far enough. It should have focused on the issue of electronic commerce to encourage its development and there should have been a minimum reduction of 2%. The refund of 0.1% for the agricultural sector does not go far enough and is discriminatory as far as the industry is concerned. The farming community loses out where another element of PRSI is concerned and we will debate that tomorrow. We should have had a balanced approach to this and examined the issue of agriculture to ensure farm families were supported. That should be an aim of the Government but, sadly, it is not.

Mr. Penrose

It is worthy to acknowledge anything which can be used as a counter-inflationary measure, such as a reduction in VAT. People who charge for services and who are registered for VAT, such as I, will ensure it is passed on. However, it is an area where more could have been done. From all the leaks, I thought the rate might have been reduced by 2%. However, I acknowledge that 1% is a start.

I am concerned about the tokenism in the budget towards rural people. The Government has shown scant regard for a cohort of people throughout the country, namely, the 140,000 full-time farmers of whom 100,000 are in the dry stock sector and of whom thousands now face oblivion because of a crisis not of their making. It adds insult to injury when people who are innocent victims stand to lose £120 to £140. The budget was an opportunity to show due recognition of the problem, if nothing else.

I support the move towards an area based system of compensation payments. However, there are winners and losers in that and one group who lose out are mountain sheep farmers who have lost £3.5 million to £4 million. We are overflowing with cash and hardly know into which area to put it, yet we missed another opportunity today to recognise the plight and difficulty of people living in rural areas. I notice even simple things, like transport initiatives for rural people, always seem to be left to one side or for a further report.

Mr. Naughten

The hind teat.

Mr. Penrose

That is it when it concerns rural people. They are forgotten. I intend to ensure they are not forgotten.

A person may have given his or her life to a certain line of business, in whatever sector of the agricultural industry, may have put in his or her best efforts to pursue the most efficient and cost-effective methods of production and may have taken measures over the past four years while others did not, yet he or she is now left to the vagaries of a marketplace over which he or she has no control. We had an opportunity today to make a meaningful contribution.

The number of farmers registered for VAT is only a few hundred, not thousands. We could have given them a 5% VAT rebate. It is not inconsistent with EU policy or it would have been taken up with us before. It has been in vogue for years with farmers ever since it began at 2% back in the 1980s. That was used as means of compensating unregistered farmers for the VAT charged on their goods.

This will go down as a black day when a Government awash with cash and spinning out of control as to how to sell the good news forgot the people who are Ireland's green oil, in metaphorical terms, when we do not have any other natural resource and nothing else on which to call. As Des Geraghty said on Monday night on "Questions and Answers", there might come a time when there will be a slowdown in the boom and we will be dependent again on the food industry which makes a substantial contribution to the economy and in which the beef sector comprises 35% of gross agricultural output. What will it be like next year and why was the opportunity not taken to help this beleaguered sector at this stage? I do not understand it.

There are many areas where this could have been done. Within social welfare, we made strong recommendations regarding the recognition of farm women and the role they play in farming. We wanted them recognised in the social welfare and taxation codes.

There has been a rush to individualisation. The word has been changed in the Budget Statement and I can see why if a single income family is only entitled to a maximum of £29,000 in the standard rate tax band whereas a two income family is entitled to a maximum of £40,000. I would try to conceal it if I were the Government. However, the people will not fall for it hook, line and sinker. It is all right for me because I come from a two income family, but that is not the point. One must be concerned about the broader masses, the people who are less well off. That is where I and, I hope, the Labour Party, distinguish ourselves from the rush to individualisation as opposed to a communautaire and solidarity approach which should underpin policies in a time of plenty.

Women on farms and in other areas of self-employment were forgotten in the budget and it is something which will come back to haunt the Government. It received a recommendation from the Joint Committee on Agriculture and Food that farm family women and self-employed women in shops throughout the country should be recognised for social insurance contributions and in the taxation code, yet not a word was uttered.

It is a poor day for rural Ireland and for farming communities who are in the throes of a major crisis not of their making. They have tried to comply with best practice. Had the Labour Party motion been accepted this night last week, it would have been another assurance to the markets in which we participate that we are one of the best in terms of compliance in our practices. I cannot understand why a miserable 0.1% was added to 4.2% to make it only 4.3%. It is an insult and will be remembered as such in rural areas.

Mr. Crawford

I am shocked that the rural community has been totally ignored. Crocodile tears have been shed about the difficulties in which farmers find themselves, yet here was an opportunity to do something about it. The 1% reduction in VAT deals with costs outside the farm, but the rate should have been reduced by 2%. Inflation is eroding the incomes of the elderly, the disabled and many others who have not been catered for very well in the budget. When one compares the £8 increase for the disabled against a £2,500 increase for someone earning £50,000, it raises many questions.

In case the Tánaiste is unaware of the fact, animals cannot be sold at the present time. The market for culled cows has disintegrated and farmers will not be able to continue in the sector because there is no longer anybody to buy the animals. The value of those cows had fallen to such an extent that the VAT being paid on them is meaningless. If one gets a VAT refund on a cow worth £400 today, but which may fall in value to £100 in a few weeks' time, the 1% reduction means nothing.

The Government had an opportunity to reduce VAT by at least 5%. The Tánaiste can cite all the figures and reasons she wants for not doing so, but it is being done on the Continent to ease the pressure on the farming community there. Farmers have been penalised more than others by the taxation structures because they do not receive the same tax allowances as the PAYE sector. Farm families are being discriminated against in that manner. The FIS has been improved but nothing is being done about the farm assist programme which has proved to be a farce and a disaster. In spite of all the difficulties, fewer people are working today than before the new scheme was introduced.

The Minister for Finance had the greatest budget surplus ever available, yet farming families have been completely ignored. Farming is still one of the biggest industries in the country and, together with food production in general, is the linchpin of my constituency. We saw what happened in Tullyveagh and it is a major news item. The Cavan-Monaghan area has also been hit by the BSE issue. My colleague, Deputy Naughten, has said this matter will continue for a few weeks, but I think its effects will be felt for much longer. We are facing an abyss and unless major improvements are made nothing will save farmers. I know we cannot vote down this financial resolution but the Tánaiste should examine whether there is any other way to use the budget surplus to underpin the livelihoods of many thousands of small farm families so that they will not go out of business. The country will be glad of them in future.

Mr. Enright

Given the way in which value added tax increases costs, it should have been reduced to at least 19% in the budget. We must seriously consider methods of keeping inflation down, and one of the ways is through reducing VAT. In the long term we should be heading for a VAT rate of approximately 15%. It may cost money but, nevertheless, it is of great importance. No matter how one looks at the issue, the higher the rate of VAT, the greater its impact on consumer prices, including a range of important items for families.

With regard to VAT item B, I am amazed that the change is only 0.1%. The cost of this change in farmers' VAT on agricultural produce and services will be in the region of £2.35 million. The cost of the farmers' stock relief measure will be approximately £1 million in 2001. I am amazed the Government has not recognised the crisis currently facing the farming community. I do not want to be a Job's comforter or say other than positive things, but the VAT issue is so serious that unless considerable financial assistance is provided for farmers, we will be back in the House within six months to provide compensation for losses incurred because of the crisis in agriculture.

Never before has the beef industry, which is so fundamental to our economy, faced such a threat. The Libyan contract is worth approximately £200 million, which demonstrates how serious is the loss of a market of such magnitude. Over the past week, farmers have contacted me because of the problems that are arising. Agriculture is still a very important industry, yet the farm stock relief measures and VAT changes are too minimal to help farmers who are going through this crisis. Farmers will be very angry with these provisions. Even at this stage, the Government should reassess the situation. Unless it does, more than 100,000 beef farmers will continue to face this threat. If the Government ignores this crisis, it will do so at its peril. It will also place the livelihoods of thousands of farming families across the country in jeopardy. The Government cannot allow that to happen.

Mr. Bradford

I support what my colleagues have said, and in particular Deputy Crawford who provided a precise analysis of the current situation in rural areas. There was an expectation in the farming community that today's budget would signal a degree of hope and Government aspirations in relation to turning the crisis around, but it contains virtually nothing to answer the cry in rural Ireland.

If I am correct, the budget makes provision for an allowance for certain farming trainees. There will, unfortunately, be literally no take up of the allowance next year or in future years because, sadly, in recent weeks young people in rural Ireland can see no future in farming. It is important, therefore, that a signal is sent by the Tánaiste and her Government colleagues that the matter is being taken seriously, will be tackled and, I hope, resolved. This VAT rebate is only one small portion of what could be a possible solution. Already there is disappointment not only among the farming organisations, but, more importantly, among the farming community at the unbelievably small amount of finance poured into farming today.

While we cannot expect the Tánaiste alone to be aware of the full extent of the problems in rural Ireland, it must be recognised that in recent weeks and days there has not just been an absence of money among the farming community, but a total lack of hope. Some signals must, therefore, be sent by the Government over the next few days as to its intentions in this regard. Rural Ireland is crying out for leadership and a new direction. So far as the farming community is concerned, this has not been shown by today's budget.

I express my disappointment at what we have heard from the Tánaiste's Government colleagues today. I appeal to her to take on board what she has heard from rural representatives. A response must be forthcoming and it must be significantly better than what we have heard today.

I concur with my colleagues on the reduction in the rate of VAT from 21% to 20%. While it would be remiss of us not to welcome it as an improvement, it is neither large enough nor strong enough. I hope the Tánaiste will give us some idea as to whether there will be further reductions in VAT rates.

An Leas-Cheann Comhairle

As 30 minutes were allocated for this debate and as the time permitted has expired—

Mr. Naughten

May we have a brief response?

An Leas-Cheann Comhairle

There will, possibly, be another opportunity. The time permitted for the debate has expired and I am required to put the following question in accordance with an order of the Dáil of this day: "That Financial Motion No. 3 is hereby agreed to".

Question put.

Tá

Ahern, Dermot.Ahern, Michael.Ahern, Noel.Andrews, David.Ardagh, Seán.Aylward, Liam.Blaney, Harry.Brady, Johnny.Brady, Martin.Brennan, Matt.Brennan, Séamus.Briscoe, Ben.Browne, John (Wexford).Byrne, Hugh.Callely, Ivor.Carey, Pat.Collins, Michael.Cooper-Flynn, Beverley.Coughlan, Mary.Cullen, Martin.Daly, Brendan.Davern, Noel.de Valera, Síle.Dempsey, Noel.Dennehy, John.Doherty, Seán.Ellis, John.Fahey, Frank.Fleming, Seán.Flood, Chris.Foley, Denis.Fox, Mildred.Gildea, Thomas.Hanafin, Mary.Harney, Mary.Haughey, Seán.Healy-Rae, Jackie.Jacob, Joe.Keaveney, Cecilia.Kelleher, Billy.

Kenneally, Brendan.Killeen, Tony.Kirk, Séamus.Kitt, Michael P.Kitt, Tom.Lawlor, Liam.Lenihan, Brian.Lenihan, Conor.McDaid, James.McGennis, Marian.McGuinness, John J.Martin, Micheál.Moffatt, Thomas.Molloy, Robert.Moloney, John.Moynihan, Donal.Moynihan, Michael.Ó Caoláin, Caoimhghin.Ó Cuív, Éamon.O'Dea, Willie.O'Donnell, Liz.O'Donoghue, John.O'Flynn, Noel.O'Hanlon, Rory.O'Keeffe, Batt.O'Keeffe, Ned.O'Kennedy, Michael.O'Malley, Desmond.O'Rourke, Mary.Power, Seán.Reynolds, Albert.Roche, Dick.Ryan, Eoin.Smith, Brendan.Treacy, Noel.Wade, Eddie.Wallace, Dan.Wallace, Mary.Woods, Michael.Wright, G. V.

Níl

Barnes, Monica.Barrett, Seán.Belton, Louis J.Boylan, Andrew.Bradford, Paul.Browne, John (Carlow-Kilkenny).Bruton, John.Bruton, Richard.Burke, Liam.Burke, Ulick.Carey, Donal.Clune, Deirdre.Connaughton, Paul. Cosgrave, Michael.

Níl–continued

Coveney, Simon.Crawford, Seymour.Creed, Michael.Currie, Austin.D'Arcy, Michael.Deasy, Austin.Dukes, Alan.Durkan, Bernard.Enright, Thomas.Farrelly, John.Finucane, Michael.Flanagan, Charles.Higgins, Jim.Hogan, Philip.Kenny, Enda.McCormack, Pádraic.

McGahon, Brendan.McGinley, Dinny.McGrath, Paul.Mitchell, Gay.Mitchell, Olivia.Naughten, Denis.O'Keeffe, Jim.Owen, Nora.Perry, John.Reynolds, Gerard.Ring, Michael.Shatter, Alan.Sheehan, Patrick.Stanton, David.Timmins, Billy.Yates, Ivan.

Tellers: Tá, Deputies S. Brennan and Power; Níl, Deputies Coveney and Flanagan.

Question declared carried.