Tax Code.

Dáil Éireann Debate, Thursday - 3 December 2009

Thursday, 3 December 2009

Ceisteanna (3)

Kieran O'Donnell

Ceist:

3 Deputy Kieran O’Donnell asked the Minister for Finance the price difference in euros between Northern Ireland and the Republic of Ireland in respect of a standard bottle of wine, a half litre can of beer and a standard bottle of spirits; the percentage of the difference in each case made up by a differential in tax; the latest estimate of the loss of revenue in excise and VAT as a result of North- South shopping; and if he will make a statement on the matter. [45165/09]

Freagraí ó Béal (9 píosaí cainte)

Deputy Brian Lenihan

I am informed by the Revenue Commissioners that a periodic informal survey, which provides a snapshot of retail prices for the main excisable commodities observed in market outlets in Dublin and Newry, was most recently carried out on 14 October 2009. A summary of the results of that survey and a number of other surveys since February 2007 are published on the Revenue's website: www.revenue.ie/en/about/publications/index-cross-border-price-comparisons.html.

For good health reasons, Ireland and the United Kingdom have applied high rates of excise to alcohol products over the years compared to many other EU member states. The detailed information requested is outlined in the table set out in the Official Report.

In summary, on 14 October, using an exchange rate of €1 being equal to 0.9302 sterling, a bottle of wine cost €9.24 here and €6.74 in Northern Ireland, with tax being €1.49 higher here and representing some 60% of the overall cost differential. A 500 ml can of beer cost €2.04 here and €1.52 in Northern Ireland, with tax being 21% higher here and representing some 40% of the overall cost differential. A bottle of whiskey cost €25.99 here and €17.17 in Northern Ireland, with tax being €6.53 higher here and representing some 74% of the overall cost differential.

As the Deputy may be aware, the Revenue Commissioners and the Central Statistics Office, CSO, prepared a report, at my request, on the implications of cross-Border shopping for the Irish Exchequer. The report was published on my Department's website on 20 March 2009. The report estimated the likely value of cross-Border shopping in 2009 to be in the range of €450 million to €700 million, with a potential loss in Exchequer revenues arising from reduced VAT and excise yields of between €72 million and €112 million. In addition, a possible corporation tax loss in the range of €20 million to €31 million is tentatively estimated. It should, however, be noted that any estimate for corporation tax is provisional and should only be considered as indicative of the potential loss.

The report noted that the main causes of price differentials between goods in Northern Ireland and the Republic are operating costs, profit margin or mark-up, taxes, and the rapid depreciation of sterling against the euro. While changes in the standard VAT rates widened some price differentials, their impact remains small compared to the size of the change in the exchange rate. For example, sterling has fallen in value relative to the euro by around a third since mid-2007.

The report also noted that there is rather limited availability of quantifiable data on cross-Border shopping. With a view to improving the data available, Revenue and the CSO have worked on questions for inclusion in the quarterly national household survey, QNHS, that should facilitate a more detailed assessment of cross-Border shopping in future. I understand that the results of the CSO's QNHS cross-Border shopping module are due to be published tomorrow.

It is a long-standing practice for the Minister for Finance not to comment in advance of the budget on any tax or expenditure matters that might be the subject of budget decisions and I do not propose to deviate from that practice.

Cross-Border Differentials

Product	Price in this State	Price in N.I.	Diff.	Total Tax/Duty in this State	Total Tax/Duty N.I.	Difference Total Tax/Duty	% Diff. made up of Differential in Tax
	€	€	€	€	€	€
Bottle of Wine	9.24	6.74	2.50	4.10	2.60	1.49	60.0%
Beer (500ml can)	2.04	1.52	0.52	0.78	0.57	0.21	40.4%
Bottle of Whiskey	25.99	17.17	8.82	15.59	9.05	6.53	74.10%

The Euro exchange rate used on the survey date was 0.9302 sterling. Small differences in calculation are due to the rounding of figures.

Deputy Kieran O’Donnell

In the report prepared by the Revenue Commissioners which the Minister provided on foot of a request I made to him at a meeting of the Joint Committee on Finance and the Public Service, reference was made to the household survey to be done in the second quarter. That did not actually happen and I welcome the fact that it is to be published tomorrow. It was a major weakness in the initial report.

I believe the Minister has got the whole issue of VAT wrong in terms of his analysis and as regards the increases in VAT. If one's business is going badly one does not increase the prices, but that is exactly what the Minister did in the last budget. The economy was going badly and instead of effectively looking at a possible reduction, he decided to increase the VAT rate. Not only did he increase the VAT rate but he also increased the bi-monthly VAT period for business in the month before Christmas. It made no sense. There are certain areas we have no control over, particularly as regards the exchange rate and if one looks at the whole issue of VAT throughout the country——

An Ceann Comhairle

Can we have a question, Deputy?

Deputy Kieran O’Donnell

Does the Minister not accept he must reduce the VAT rate, particularly in terms of cross-Border activity? In the report he has just mentioned operating costs only account for 6% of the price differential between Northern Ireland and here. The Government has admitted its mistake in this regard, and this being so, the best way to remedy that is to change it. Will the Minister now give an assurance that he will at least restore the VAT rate to its former level to help people in cross-Border areas in particular, although this has affected business throughout the country?

Deputy Brian Lenihan

It is not my practice to comment on the budget in advance. Clearly, any budgetary decisions will have to be made in the context of a coherent framework of taxation and expenditure. However, I reiterate that with the notable exception of the United Kingdom, EU member states have generally not opted for VAT rate cuts as a way to boost consumer spending.

Deputy Kieran O’Donnell

They certainly have not got the VAT rate increases we have.

Deputy Brian Lenihan

In contrast, some member states have increased VAT rates, curtailed the scope of exemptions and reduced rates to help cover the budgetary shortfall generated by the slump. Indeed, it is understood that some other member states are considering increasing their VAT rates as part of the ongoing response to the general fiscal crisis. The United Kingdom standard VAT rate is due to revert from 15% to 17.5% on 1 January next year, so the position in relation to VAT is far from consistent throughout the EU. Although the UK cut its standard rate of VAT from 17.5% to 15% on a temporary basis, from 1 December 2008 to the end of this year, at the same time it increased excise duties on alcohol, cigarettes, petrol and diesel, to offset the 2.5% reduction in VAT on these items. Consequently, there was no reduction in the price of these products in Northern Ireland as a result of the reduction of the UK VAT.

The VAT rate, as I pointed out earlier, is only one factor in the price differential between North and South. The considerable weakening of sterling has had a far more significant impact on relative prices than any VAT changes. Past experience has shown that fluctuations in the relative exchange rates can have a direct effect in terms of the level and balance of cross-Border trade with Northern Ireland.

Deputy Kieran O’Donnell

The Minister seems to be taking both sides of the argument. He was quite critical of the Labour Government in the UK in his response to Deputy Burton. We cannot tax our way out of a recession and he is quoting here about increasing tax rates. Are we to take it, therefore, that he might be increasing rather than reducing VAT rates?

It is critical that the Minister deals with the matter in hand. We are competing with Northern Ireland and we have no control over the exchange rate. The one thing the Minister has control over is VAT rates. An estimated 400 jobs are involved as against €143 million in lost revenue. I am concerned here with jobs. The only way we can come out of this recession is to ensure people retain their jobs. Can the Minister say whether he agrees with the Labour Party in the UK?

Deputy Brian Lenihan

The Deputy can take nothing from my answer as regards what will appear in next week's budget. I have simply being drawing his attention to certain general considerations in these areas. In mentioning the fact that other member states increased VAT, I was not in any way suggesting that this should be a precedent or a model for our own practice in this area.