Amendments Nos. 122 and 124 are related and will be taken together.
SECTION 153.
Chairman
I move amendment No. 122:
In page 167, subsection (1), lines 41 to 44 and in page 168, lines 1 to 10, to delete paragraph (a)
These amendments have become somewhat garbled. I am sure it is entirely my fault. What I basically wanted was a canter over the fences such as we had in some detail this morning. It was my understanding from previous Finance Bills and from the comments made by the Minister's predecessor that we were heading towards harmonisation, and that the charges being made in VAT were in pursuance of this objective of harmonisation, more latterly described as approximation. I understood that to mean we were trying to reduce our standard rate. I appreciate it is costly. The Minister commented on Second Stage that it cost approximately £67 million to cut one point off the standard rate. Nonetheless, our expectation in terms of economic advantage was that if some of the 12½ per cent tranche moved upwards it would be offset against a lowering, to some extent, of the 21 per cent rate. That has not happened and there seems to be a shift away from what we were told would happen by the previous Minister.
In the Bill one can see graphically the structure we now have. It is zero, 2.7 per cent rather than 2.3 per cent for the special refunds for farmers, 10 per cent, 12.5 per cent now 16 per cent and the standard rate of 21 per cent. That is a long way from simplifying the system which is what I thought was intended by the previous Minister. My understanding was that he was talking about a standard rate of 16 per cent or 17 per cent and perhaps a second rate of somewhere less than 10 per cent, maybe 8 per cent or 9 per cent. The world seems to be much more complex now that it was then. I was surprised at what the Minister had to say about the rates obtaining in other countries. I was under the impression, listening to traders in this country complain about the highest rates in Europe——
It is the same argument they make about PRSI rates.
Judging from the figures the Minister has given there are higher rates than ours in some countries.
Deputy Rabbitte has acknowledged that there was a hitch in the typing of his amendment. The cost would be considerably more than the £60 million he suggests. The point made by Deputy Rabbitte is interesting because, I, too, swallowed the arguments and special pleading about the extraordinarily high rates of VAT in Ireland. Hopefully, the Minister's and Deputy Rabbitte's comments on this will be carried in some of the miserly coverage that this committee is getting. It is interesting that we were all deluded into thinking that our VAT rates were singularly out of line, particularly at the upper end when one sees the two rates in Denmark, zero and 25 per cent. It puts the spread of rates in Ireland into perspective. France has an upper rate of 25 per cent as has Belgium. The Netherlands has an upper rate of 18.5 per cent. In Italy it is 38 per cent; Spain 33 per cent; Portugal 30 per cent and Greece, 36 per cent. There has been a lot of special pleading in this country over the last few years. We have all made the mistake of simply accepting at face value the arguments put forward for change here. I understand what the Minister is doing. Some rates have been moved upwards with a view to ultimately bringing them up to 21 per cent, other rates the Minister has tried to depress. It is a complex area. It is very difficult to make inter-country comparisons. When one looks at the overall picture for the EC member states it is correct to say, as Deputy Rabbitte recognises and as the Minister has said, that our rates are not so far out of line as we might otherwise have believed. Deputy Rabbitte made the point that the amendment was primarily aimed at discussing the whole issue of VAT rates. The opportunity to do so is very welcome, particularly if it will throw some light on what is an obscure area. The amendment will probably not be pressed.
I have a note which may be helpful on the Community rules on reduced rates post-1992. Under the EC rules, optional reduced rates may only be applied to the supply of goods and services list. This is the optional reduced rates list. There are about ten of them: food for human and animal consumption; water supplies; pharmaceutical products for humans and animals; medical equipment for the disabled; passenger transport; publications; admissions to entertainment services; royalties for writers, composers and others in those categories; social housing; farm inputs; hotel accommodation; admissions to sporting events, use of sporting facilities; welfare and charitable activities; funeral undertaking; private medical and dental care; waste disposal and refuse collection. Work is continuing on Council working parties to define more precisely the scope of each of these broad headings and ECOFIN will be asked to give its final endorsement. Passenger transport and funeral undertaking are currently exempt in Ireland by way of derogation under EC law.
It was my understanding that it was Government policy to harmonise the rates, within a 2 per cent difference of our nearest trader, the UK. To a large extent, we have all been saved by the need for the British Conservative Government to finance the abolition of the poll tax by increasing VAT rates. This was not expected under the Thatcher regime. We have been given a certain amount of breathing space. We should not go back to the situation that occurred in the mid-eighties when the changes — very costly for the previous Administration — started when we were assured by people in the white goods trade and in the liquor trade that cuts in excise duty and VAT would be self-financing. In fact, they were not but it was necessary to sustain in part the retail base of the Border towns, such as Dundalk. The illegal act in 1987, consciously known to be illegal on the day it was announced by Deputy MacSharry, gave a breathing space but in the future the arguments of Irish Ministers will not be strengthened if it is thought that we are capable of going off-side when it suits us.
My understanding was that the harmonisation downwards of our VAT rates which were known and recognised to be skewed in terms of the overall base and higher than normal because of the distortion in our overall taxation base would occur by an internal adjustment of the higher and lower rates. That policy seemed to me to have been annunciated and had broad Government support over various Administrations since 1987. Can the Minister explain, in the context of asking us to accept these changes now, why he felt it necessary to raid the VAT base to finance part of the income tax reductions? The arguments were well articulated on the Second Stage debate. The Minister did not get a chance to elaborate on this. Was it a once-off raid or did it set a precedent?
It seems to me that we have to ring fence the whole VAT revenue area as a consumer charge and attempt to rationalise it so as to reduce our rates. Our standard rate is 21 per cent and the British rate is 17.5 per cent. That differential will be material to large scale consumers and if we take into account the absence of excise duties, no Border controls — the Minister knows the argument I am making. I do not want to castigate the Minister for raiding the VAT rate in relation to income tax. I am more concerned with what the policy is now and what the future holds.
The policy is to try to cut the standard rate taking account of the other budgetary requirements. We must remain competitive but we would all like to see the margin with our nearest neighbours reduced. Each year is assessed on its budgetary merits. What we have at zero rate, the number of exempted items and the fact that many of our luxury products are not higher than others, are all part of the argument. In the Programme for Government the priority was to have two rates of taxation, 27 per cent and 48 per cent. If we were to do that over a number of years the benefits would go the wrong way but this year we were putting money back into people's pockets. We cannot do that on an ongoing basis. The standard rate was not reduced this year because of the tax package which was based on the income tax. In some of the other areas, for example, excise on petrol, soft drinks, television sets and videos, the costs of those were met from the VAT area.
Some of my colleagues have not yet had the opportunity of being Minister for Finance but one gets letters from lobby groups before the budget pleading that VAT and excise rates be brought down. That is done in the budget and the next morning a letter is received asking what about goods in stock. The pressure goes on and nobody cares about what has been achieved.
I thank the members of the committee for the opportunity to tease out this complex system. It is important to know what is happening in other countries. VAT rates are too high. What I do not accept is the argument that rates are too high unless everything is zero rated which is impossible. In a democracy, firms, companies, lobby groups and pressure groups are entitled to put forward their views but they misinterpret the system at every opportunity and abuse it when they get a chance. Many of them use the excessively high rates and will still find loopholes around them. I am not talking about compliant taxpayers. Some literature has already appeared even though I feel most of the bodies involved are holding their literature until we pass this Bill on Friday week. Then we will see coloured pamphlets and documents detailing ways around the system. That is not so bad because they are doing it from a professional point of view and are paying taxes themselves but many businesses try to find ways and means to avoid paying VAT.
One of our concerns, as I said this morning, is how to protect that VAT base in the future. It will be a difficult task. It would be my wish, if I were in this job for several years, to cut the VAT rate because it affects competition and consumer spending.
We undertake to continue the Minister's good work.
To get back to the general issue of the rates, it is intriguing to note that 17.4 per cent of the potential value added tax base, about £2.75 billion worth of goods, is currently zero rated and at the other end of the scale, the 16 per cent rate which is the new rate, applies to about 14.6 per cent of the total quantity of goods, amounting to £2.3 billion. Almost one-third of all the consumer goods sold in the economy are on, or below, the 10 per cent rate. That is a considerable portion of the total goods and services liable for any sales tax, which is what value added tax is. It puts it in perspective.
Deputy Rabbitte made the point that there has been an extraordinary amount of special pleading. One study came my way which made comparisons between the rates of taxation here and in the United States. On reading it, I realised that a range of taxes which are not payable here were not included in the comparisons. For example, they compared our VAT rates with uniform sales tax rates in certain states but they excluded in places like California a range of special taxes which are paid and which usually form part of either a state or local government authority budget. We cannot make any direct comparisons.
When one looks at the overall figures, only one of the other member states, Belgium, has as complex a range of rates. When one looks at some of the top rates that are currently charged, we come to a different view of the value added tax base. The point the Minister made is correct. If this, or any other Minister, were to accede to even a small proportion of the special pleadings, there would effectively be a reduction to the point where the value added tax base would be meaningless. The Minister has indicated that he is trying to ease our passage towards the harmonised rate. We accept that when one looks at the detail, it is very hard to accept some of the special pleadings to which we have been subjected in the run up to this discussion. The tax base is very limited.
There is a quotation carved on the IRS building in Washington which says: "Taxes are the price we pay for living in a just society". If one put that quotation over Dublin Castle or the Department of Finance, people would laugh because we are a far more cynical race. There is not a general acceptance in Ireland that every service attracts a cost and the only way of servicing the cost is by taxation. I accept the point about the regressive nature of Value Added Tax, particularly of some of the higher levels.
It was a worth-while exercise to delve into the comparative nature of VAT. What emerges when one looks in a cold light at the true comparisons between Ireland and other countries is that, while we have a more complex series of rates, we exclude a considerable amount. The room for manoeuvre within the rates, for this, or any other, Minister is quite limited. Of course, that does not mean that I will not plead for my own interests when they arise from time to time.
The Minister has educated us this morning. I was under the illusion that we had the highest VAT rates in Europe.
That was only Fianna Fáil propaganda.
Not all the time. There was propaganda from the Deputy's side of the House also.
That is the nice thing about the Deputy's party; they actually believe their own propaganda.
We would not say it if we did not believe it.
Deputy Dukes brought the 35 per cent VAT rate down to 25 per cent.
Belgium shares the record with us of having the highest number of rates, six in all. What criteria is used when categorising goods and services?
It is interesting to look at the maximum rates in each European country. It is 38 per cent in Italy; 33 per cent in Spain and 30 per cent in Portugal. It would appear that when the harmonisation rate of 21 per cent comes into operation it will not be severe for some people. What will eventually happen with the existing VAT rates in this country? It is obvious that VAT rates will have to be increased in order to harmonise with the rate of 21 per cent. How will that affect trade in this country?
Are the goods that are zero rated the same in every country or have different EC states the privilege of including items which they believe to be relevant to their trading position? Are the same goods listed in the different band rates? Assuming the 21 per cent rate is the harmonisation band rate, will the European Parliament list specific items for each State?
Chairman
We hope to dispose of this amendment before 1.30 p.m.
What is the status of amendment No. 123? Is it in order?
Chairman
Yes, it is in order. We will try to dispose of amendment No. 122 in the name of Deputy Rabbitte before 1.30 p.m. We will then commence on amendment No. 123.
I answered most of the points. Regarding Deputy Hilliard's question, there are certain rules we must keep. The standard rate must be kept over 15 per cent and where that goes will depend on budgetary considerations. We can hold the zero rate for at least some years. The 2.7 per cent rate, which relates to agriculture, we can hold. The 16 per cent rate will be increased to 21 per cent and that will eliminate the 16 per cent rate.
I thought they both moved to a middle point and that it would go from 16 per cent to 18 per cent to 21 per cent.
No, it is an option. We do not have to move straight to the 21 per cent rate. They will form one rate at some stage. The only decision we will be left to make is in relation to the 10 per cent rate and 12.5 per cent rate. In the medium-term we will have zero, 2.7 per cent, 10 per cent to 12.5 per cent and whatever the standard rate will be.
The EC policy states that as well as a standard rate we could have two lower rates. Has the Minister taken up the option with the zero and 2.7 rates?
No.
Can we have two other than those?
We got approval to hold the zero rate for a period and we are all right with the 2.7 per cent.
We could run with the 10 per cent and 12.5 per cent rates.
No, with two reduced rates but they must be greater than 5 per cent.
How long can we hold the zero rate?
Until the review in 1996.
Is there any European comparison for this 2.6 per cent special VAT refund to non-registered farmers which took me years to understand?
All the other countries have it except Denmark and the UK.
Except Denmark.
Except Denmark and the UK.
Amendment, by leave, withdrawn.
Before we leave, could the Chair give us some advice? We have made good progress on VAT but there are some sections towards the end of the Bill that we will have very little time to debate. Is there anything in Standing Orders which prevents us from finishing this section before 5 o'clock and pulling forward other sections?
Chairman
I am advised we will have to proceed but I will facilitate members if I get co-operation from the floor.
The point is that we cannot go back over sections we have passed but we can bring forward sections for debating purposes.
Perhaps the Chair will clarify the position when we return after lunch.
Chairman
Yes, but I am advised at this point that we must work our way through the Bill systematically.
The Chair can clarify it and announce what the position is at the start of the next session.
Can we start section 148 at 4 o'clock?
Chairman
We can proceed as quickly as members want but we must go through each section.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.
Chairman
We are still on section 153. We have amendment No. 123 in the name of Deputy Noonan.
I move amendment No. 123:
In page 168, subsection (2) (a), line 20, to delete "21 per cent." and substitute "18 per cent.".
This amendment to section 153 proposes to reduce the top rate of VAT from 21 per cent to 18 per cent. Much of the background to this amendment has been covered already on previous amendments in the name of Deputy Rabbitte. I wanted to draw attention to the impression given by the previous Minister for Finance, the present Taoiseach, that VAT would be ringfenced where yield was concerned and that, while there would be extensive changes within the VAT code, it would be a question of swings and roundabouts; yield gained by increasing a low rate of VAT would be dedicated to a reduction in the standard rate of VAT. I understood until now that the 12½ per cent rate for certain items was going to go up towards the new standard rate and the Minister has indicated now that across a range of items and services the 12½ per cent will rise to 16 per cent. I thought however that that would be accompanied by a parallel move of the 21 per cent rate downwards. I thought that the Minister in one leap this year might have been able to achieve a rate of somewhere around 17½ per cent to match the UK rate.
I put down this amendment to draw attention to the fact that some of the yield obtained from increasing the 12½ per cent VAT to 16 per cent has been used to fund the income tax package and some of the excise breaks which the Minister announced on Budget day. One cannot earmark down to the last pound where yield was directed but money has been taken out of the VAT loop and dedicated elsewhere. That is bad policy.
I found the debate before the break informative. The Minister gave us useful information on the up-to-date VAT position because there has been a misunderstanding of VAT policy since Madame Schrivener varied Lord Cockfield's proposals. The Cockfield proposals coincided with the concept of the harmonisation of VAT and made an impect on the Irish people. The debate has not gone beyond that point because people are still talking about a single higher rate of 17½ or 18 per cent and a lower rate ranging between 4 and 9 per cent. As the Minister pointed out that is not the current position. The Community as a matter of policy has adopted the idea of a minimum standard rate of at least 15 per cent and countries have discretion then to pitch their higher standard rate wherever they see fit. Once border posts are removed the forces of competition will naturally force nations to adopt the rate that applies in their nearest competitor nation. On the other hand the Minister stated that we could adopt two lower rates of VAT. I was surprised at that; I thought we were confined to one lower rate but two lower VAT rates seem possible at the discretion of member states and the only prerequisite there is that the lower rates should be greater than 5 per cent. This area was fully debated before the break and I do not want to go over the same ground again. I have made my point on this amendment.
I would like to move on now into the section proper and ask the Minister to list again the goods and services on which the rate is being increased from 12½ per cent to 16 per cent. I know he indicated them on Budget day but I am not sure that they were indicated fully then. Would he also state what goods and services are being left at 12½ per cent? Would he also indicate what goods and services are being reduced from a 12½ per cent rate down to 10 per cent? I know this section crossrefers with the schedules of the 1985 Act but I would like to get them on the record as we discuss this section.
There seemed to be a policy two or three years ago in Minister MacSharry's time that immobile goods and services attracted the higher rate of VAT. Something is mobile if it could be brought into the country or bought in Newry and brought down. Buildings and houses by definition are immobile. The same principle applied to the public utilities. It was argued at the time that the generation of electricity, the supply of gas and telephone services would all move to the highest rate. That was the view at a time when our standard VAT rate was 25 per cent and the UK's was 15 per cent. The gap was wide and there was a fear that cross Border traffic would destroy trade not only in the Border counties but also in Dublin.
The VAT situation has changed dramatically since then because our rate is now 21 per cent while the second last British budget increased their rate to 17½ per cent. The gap is not as wide as it was. Under the new circumstances, is there still a hardnosed view that public utilities, buildings and immobile services that cannot move across national boundaries, will be subject to the high or standard rate or has there been a change of view since terms of trade between ourselves and the UK on account of varying VAT rates have changed?
I would like to thank the Minister for all the comparative information he gave about our EC neighbours. I knew that some states maintained high rates and I share the view of the Deputies who said that conventional wisdom in this country decrees that we have the highest rates of tax on everything. That is not true in VAT, PRSI or in income tax. The Irish tax take might be one of the highest in Europe but that is different from the rate at which tax is applied. Ireland has a high tax take from average earnings but that is a different matter. I do not mean to kick them in their absence but the Progressive Democrats persistently follow a one item agenda about tax rates and have imprinted on the public consciousness the impression that all our tax rates are extravagant. The public believed that message but it is not true. Our tax rates were high at one time. When we were in Government there was a furore about raising what is now the standard rate of VAT. VAT was then around 17½ per cent with a higher rate on luxuries as in France, Belgium and so on. When we went into Government in 1981 and in 1982 the top rate of VAT was 35 per cent. In the reordering of the schedules to which the different rates of VAT apply the 17½ per cent rate went up to 25 per cent but the 35 per cent came down to 25 per cent. It is not always remembered either that when Deputy Dukes became Minister for Finance in 1982 the top rate of income tax was 65 per cent. Progress has been made in reducing rates during the last three or four years but in our time in Government the top rate was brought down from 65 per cent to 56 per cent. It came down subsequently from 56 per cent to 52 per cent and in the Minister's budget it has come down further to 48 per cent. There has been no dramatic switch in policy which is the point I am making. Attention has been concentrated on the rates at which tax applies and not directed sufficiently at actual levels of taxation or the percentages of total income taken in taxation.
Finally I would like the Minister to indicate his intentions regarding the two lower rates of VAT. I know that he is not amalgamating the 16 and the 21 per cent rates which, depending on budgetary conditions, will produce a new rate below 21 per cent we presume. I understand that research in America suggests that distortions in trade occur if taxation regimes are more than two-and-a-half points apart. I do not know whether the same would apply to Europe but it would apply to Ireland and Northern Ireland.
Rates need not be perfectly matched, If the VAT rate in the UK is 17½ per cent a 19 per cent rate here would not distort trade. The intention may be to go lower and there may be an advantage in going below the UK rate. The Minister might revitalise the Border counties, if he could fix our VAT rate below the UK rate. There are many policy arguments to be considered here and the Minister was clear in his reply.
On the European side, the EC is now allowing two discretionary lower rates. It is hard to justify two lower rates at 12½ and 10 per cent because the gap between them is so narrow. I could understand two low rates if one was at 5 per cent and the other at 12 per cent. Is it intended to amalgamate those rates by pulling them down to ten per cent or pushing them up to 12½ per cent? Is it intended to bring in a rate at around 5 per cent to exceed the EC minimum floor and to fix a medium rate between ten and 12 per cent? I would like the Minister to comment on possible VAT rates and on future VAT policy.
Deputy Noonan's contribution reopens the issue of the extraordinary focus placed on the small narrow issue of tax rates whether in income tax or value-added tax and of the fallacy of that one item agenda. I suppose the Minister is not going to rise to Deputy Noonan's mention of a minority party that seems to have an ideological hang up about it but I have no worries there. There was some teasing here last night because the chairman of that minority party with the single item agenda in the tax area and myself have locked horns on this matter more than once. The reality is, as Deputy Noonan and Deputy Rabbitte recognised, that we do not have excessively high rates in income tax or VAT. The distortion of the taxation debate — Deputy Noonan is correct — has been such that the extraordinary and real achievement, going back to the time Deputy Noonan's party was in office, of reducing the top income tax rate from 65 per cent then to 48 per cent rate now has been overlooked. Substantial progress has been made and would bring relief if income tax rates were the only problem as opposed to the tax take from the income of the average household between income tax and value-added tax. This is where one comes into the bind. Ministers for Finance for the last five to ten years have been on a treadmill trying to reduce the rates but have got little credit for doing so because the real problem is the take. The real problem is the overall take out of taxpayers' pockets, particularly out of the PAYE person's pocket. That is the issue we have to address and it is a difficult one to address.
The other points that Deputy Noonan made about harmonisation of the rates and in particular about the rates in border counties are interesting ones. The border issue has arisen in the United States because they have had massive tax distortions on state borders because of variations in local taxes between some states and, now as Deputy Noonan correctly says, there is a conventional and accepted wisdom that only a narrow range, perhaps two-and-a-half percentage points is tolerable. The Chairman, coming from a border constituency will be familiar with the problem. I think the question that Deputy Noonan was posing to the Minister was what is going to happen and how are we going to move vis-�-vis the British rates as regard value-added tax. If we wish to avoid distorting effects we will have to move closer to the British rate and I await with interest the Minister’s reply.
This arid discussion has gone on for the last two-and-a-half years. The argument that tax reform equals reducing the tax rates, whether value-added tax rates or income tax rates is a cul-de-sac argument leading us nowhere and yet policical parties and economic pundits are fixated on the issue to a damaging extent. We should refocus that debate on the overall take from taxpayers’ pockets as opposed to the nonsense argument about getting the standard rate down to 27 per cent, 26 per cent or 25 per cent following which we go out and beat our breast and say we have done something marvellous for the Irish people. In reality, we will have done nothing but get rid of the few concessions and tax breaks PAYE people enjoy. It is important that we focus the tax debate more on the overall issue of tax take.
We should focus too on the expenditure side of these equations; if the tax take is diminished so too must the expenditure side which is also a concern for a Minister for Finance. Minority parties and pundits are willing to argue from the hills that in some sort of academic way there should be a general curtailment of services paid for by all these taxes but there is a failure by the same pundits and marginal commentators to recognise that one cannot talk only in academic terms about reductions in services. At some stage one has to reduce real services and that is where the pip squeaks and when these same minority politicians bolt for the hills and say "yes, we accept in general that there will have to be curtailments but not in this area or not in that area". Deputy Noonan was quite correct. What we should be focusing on now and in the years ahead is the tax take — the overall reduction of deductions from the income of workers; these men and women keep this country ticking over.
We are having an interesting debate and if, as Deputy Roche said, some clarity emerges from this taxation debate, it will have been worth while. We need to balance the debate somewhat and acknowledge that, while the actual tax take has not come down dramatically, nonetheless the reduction of tax rates has been costing the Exchequer significant amounts of money since 1987. From my information the cost of reducing the tax rates this year from 52 per cent to 48 per cent and from 29 per cent to 27 per cent will be in the order of £290 million in a full year. That is a significant loss to the Exchequer and indicates that it must have some impact on take home pay for workers, especially those in the PAYE sector. We should stop creating the illusion that we can significantly reduce tax take whilst at the same time maintaining adequate spending levels on fundamental services such as social welfare, education and health, which are the three major spenders. There has to be some degree of honesty here which has been lacking with some parties up to now. Parties have argued continuously for lower rates while at the same time threatening to bring down the Government on the closure of hospitals in certain constituencies and so on. There is a lack of clarity and honesty.
Chairman
I am worried that we are getting back to Second Stage.
The overall framework is an elastic one.
Chairman
I would appreciate if we could——
I was picking up on Deputies Noonan's and Roche's points. The Minister gave us figures this morning indicating our comparative position on VAT rates with our European partners. It is interesting to note that a country like Denmark, for example, has a 25 per cent VAT rate overall whereas we still do not impose VAT on food, for instance. That is an incredible comparison and will help clarify the issue for members of the public who believed that our tax and VAT rates were excessive compared to our European partners and that they consequently enjoyed an unfair competitive advantage over us. This should clarify the question of industrial competitiveness and it indicates that our code is not as punitive as we may have thought it was. The Minister may have indicated his intention in this regard this morning but certain service areas such as tourism kept at the lower rate of VAT as we come closer to harmonisation. He might give us some indication of future breaks envisaged.
I will try to respond to some of those points. Telecommunications must be standard rated; electricity and gas may be standard rated but, subject to meeting certain conditions, reduced rating is possible. The option of reduced rating will exist for housing but commercial buildings must be standard rated. The standard rate has been reduced from 25 per cent to 21 per cent and is being partially financed by the movement upwards of rates on certain goods and services which were hitherto low rated but which after 1992 must be standard rated. That will cost over £250 million annually on an ongoing basis. Naturally enough what we will do with the reduced rates will depend on budget ary circumstances. I know that it would be easier administratively for businesses if the system were standardised and I would certainly have that as an objective. Deputy Micheal Martin made the point about food being zero rated here while our EC colleagues in Denmark have a 25 per cent rate. This is an extreme example but it shows the disparities in rates between ourselves and countries we are harmonising with. Any time any Government has looked right or left on this issue we know what the difficulties have been. In Denmark there is no rate between zero and 25 per cent; there are no reductions anywhere along the line. The aim would be to try and make the system clearer.
In reply to Deputy Noonan, I would like to have three rates in whatever time it would take. Whatever about the tax arguments, the idea of having 27 per cent and 48 per cent income tax, the manufacturing tax at 10 per cent, corporation tax at 40 per cent, the straight line in depreciation, and capital gains of 40 per cent simplifies it for an awful lot of people. It gets away from the convoluted schemes where there are several rates. I would agree with Deputy Noonan, particularly as we move on the road of self-assessment, that one of the excuses people can use is that it is not a straight line and a simple system so they cannot partake in it. It is better to have the system clear, rather than as before.
House building can be taxed at the reduced rate. At present it is taxed at 10 per cent. Deputy Roche asked about the hotel industry taxed at 10 per cent, which affects most of our tourism. I have been asked about goods and services to which the increase to 16 per cent applies. The rate increases from 12.5 per cent to 16 per cent would apply to the following categories of goods and services: auto LPG, works of art, literary manuscripts, most antiques, telecommunications, adult clothing and footwear including materials for their manufacture, spectacles and contact lenses, general repair and maintenance services other than building work. Car repairs would come under general repairs. Hairdressing would also be included, as would photographic services, car driving instruction, farm auctioneering, farm accountancy and farm management services. Goods and services remaining at 12.5 per cent include fuel for power and heating such as coal, peat and timber, electricity, gas other than auto LPG, which is at 16 per cent; heating oil, restaurant and hotel meals, cinema admissions, theatre, musical performance including cabarets, admission to certain exhibitions, waste disposal, veterinary services and agricultural services. Items at the 10 per cent rate include building, concrete blocks, readymix concrete, hotel accommodation, tour guide services, short term hire of cars and boats, newspapers and news periodicals. These have not changed.
There is one further issue I would like to raise with the Minister. Small businesses which reach a turnover of £15,000 have to register for VAT. In line with the changes in Europe where the exemption limit for payments is £32,000 under the sections discussed, would the Minister consider raising the ceiling for registration purposes? I know it suits some people to register at a very low level because they can claim back inputs, but there are other people it does not suit at all. It is a small level of turnover to require registration. That should be lifted. If the Minister could bring in a Report Stage amendment to do it, there would be support from all sides of the House for that.
The position on that is that it is £15,000 for services and £32,000 for goods. A small trader who would be under the £32,000 for goods would not have to register.
The services ceiling is very low.
It is £15,000, and is not a large figure.
Why is the divergence being maintained when services and goods are going to be treated in the same way by the new regime in Europe? You can think in terms of small accountants or solicitors with three clients.
I think Deputy Noonan has a point. An answer is that the £15,000 for services would have lower inputs than goods. That may make a difference, but the lists for other countries would show that our figures are high. Some countries such as Belgium, Spain and Italy do not apply any minimum threshold for compulsory VAT registration. It is an issue we could examine at some stage.
Is there any possibility that the Minister could look at it between now and Report Stage? I presume the Report Stage of this will be on Tuesday?
It is actually still on the agenda at EC level. I am looking at a chart of some other countries. Our threshold is the second highest, based on this chart. I will raise it in discussions with the EC. They should not be too high either. By and large, registration thresholds in other member states are much lower. The Commission have promised to propose a harmonisation system. Any such figures are likely to be lower than those we currently apply. We will wait and see how that discussion moves during July.
One final point on the 2.7 per cent flat rate rebate to farmers — some farmers register and are treated in the normal way for VAT purposes and VAT rebate. The 2.7 per cent only applies to those who do not register for the flat rate rebate. Will there be anything under the new regime to require farmers over a certain turnover to register, or will they still be able to exercise the option of registering or not registering, regardless of turnover?
They can stay on a flat rate unless their purchases of goods in another member state exceed £32,000. Otherwise, they can stay on the flat rate. If their purchases of goods in another member state exceed £32,000 then they have to register.
The fellow buying the charolais from France will have to register?
Presumably in the case of the larger holdings nowadays they will end up paying more. There are advantages for them in doing that.
Amendment, by leave, withdrawn.
Chairman
Amendment 124 is in the name of Deputy Rabbitte. We have dealt with this in amendment No. 122 so I take it the Deputy is not pressing it?
I am not pressing it.
Amendment No. 124 not moved.
Sections 153 and 154 agreed to.