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MINISTER FOR FINANCE Michael Noonan has admitted that his proposal to raise VAT by two per cent in the forthcoming Budget – which will raise VAT from 21 to 23 per cent – did not account for any impact on consumer demand.
In response to a parliamentary question tabled by Fianna Fáil’s finance spokesman Michael McGrath, Noonan said his estimates – which said the proposal could raise an extra €670m – did not allow for the fact that it could lead to lower sales.
Details of the VAT proposal first emerged last week when news broke of secret Budget proposals being circulated to German MPs – documents which have since been released by the Department of Finance.
Those plans outlined how the government wanted to bring forward the 1 per cent increases already agreed for 2013 and 2014 – instead bringing in both in time for 2012, as part of its plans to raise €1.6bn in new taxes.
McGrath said Noonan’s declaration was “quite incredible”.
“If you speak with retailers in any town, village or city in Ireland, they will tell you that a 2 per cent increase in VAT will lead to less consumer demand.
“In the border county areas, retailers are adamant the VAT increase will encourage more consumers to shop across the border,” he said.
The government has insisted that the decision has not been finalised, and is merely a proposal that will be taken to the cabinet before a final decision is made.
The last time Ireland raised its top level of VAT – from 21 per cent to 21.5 – was in October 2008, a move which then-minister Brian Lenihan later lamented as a “serious mistake”.
That increase had coincided with a 2.5 per cent decrease in the top level of VAT in the United Kingdom – with Lenihan estimating that the Irish exchequer had lost around €700m as a result of the increase in cross-border shopping.
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“…Didn’t account for lower sales…?”
How in hell did this man get his job? Good lord!
Don’t forget the bright sparks who are advising him as well. 1 of whom I assume is on his way to to catch the euro gravy train once his appointment has been rubber stamped by the EU parliament..
Laffers curve has been around for over 30 years. The idea is relatively simple. Once tax rates increase over the optimum rate revenue yields diminish.
The state may well yield higher revenues by reducing tax rates rather than increasing.
http://www.heritage.org/research/reports/2004/06/the-laffer-curve-past-present-and-future
I’m not a fan on Noonan, but to be fair, he’s a politician not an economist, it’s not his job to run the numbers, it’s his job to review the numbers and make a decision. Since I heard about this I’ve been saying it’s a stupid idea because the last time we raised VAT it backfired completely. I’m guessing that it’s the same inept, unelected, senior civil servants who advised Lenihan to do a VAT increase who are advising Noonan to do the same.
How those people keep their jobs after ruining one finance minister and almost(And may yet still) ruining another is beyond me. The government really has to get over it’s terror of firing senior civil servants for incompetence. It’s incompetence! There’s literally no better reason to fire someone!
We have an ex-school teacher as Taoiseach, and an ex-school teacher as Minister for Finance, the only minister with a finance background is Joan B. Would they consider that a possible REDUCTION in VAT would lead to an INCREASE in actual income? C. McCreevy halved capital gains tax from 40% to 20% and yields gains almost immediately. Once again we have amateurs, advised by experts (so called), who ignore the people who really have a clue, and further pull us down. This is just further proof that we can’t rely on government to create an environment to build growth/jobs. We have to do it ourselves…
Noonan admits: Plans for VAT hike didn’t consider drop in demand, end quote…………. So is the reverse true ‘lower VAT and consumer demand goes up increasing revenue, jobs and hope, nah must be too simple for a non economist human like me!
Sean, you’re 100% right about the Laffer curve. It’s clear VAT is on the back-end of the curve, seeing as revenue dropped the last time they increased the rate. I don’t understand how the likes of people with Ph.D’s in economics and the likes are not running countries
Didn’t consider the impact of raising VAT by 2% on domestic spending? I don’t know if I should laugh or cry.
Laugh now while you can, you might be crying enough later!
I posted this last week here when the news broke, I have zero training In economics and I knew this. Here’s one way of cutting public sector pay bill, fire whoevers responsible for this. Makes you feel like crying.
I dont have a job and im infinitely more competent than any of the public servants advising the government. How does one get a job in this amazing public sector?
@ Pat Ryan I’m not an economist nor am i a politician but it does not take a huge amount of Brains to realize that increasing vat by 2% puts prices up to the consumer so therefor lowers sales
This budget should be all about getting the consumer back buying to circulate money which in turn creates Jobs which creates more tax going into the state coffers and not out of it
Is it April 1st already?
Can’t see the wood through the trees stuff, its absolutely incredible! It proves yet again how our political elite and senior civil servants are so out of touch with the people.
Ahhh FFS! This is ridiculous. What do we expect with an English teacher as Minister for Finance?:( Insanity.
Is he for Real! Can’t believe he did not factor this in! What kind of idiots do we have running the country..
German and France puppet ones!
Tom,The people running the country are the kind of idiots the majority of people voted for. Don’t forget to march on Saturday.
I think a new poll on Noonan is required in a day or so, when news of this latest cock-up sinks in!
Seriously – this is unforgivable for a person in their awarded status position.
Good work Minister Noonan, but if you’re of the belief a 2% increase can raise €670M without any negative impact then why not increase it by 50%. Working by your logic, that would surely raise loads more! Forget that the late Mr Lenihan regretted his increase due to the impact it had on cross border spending. Why learn from others mistakes when you can make your own.
what type of economic advisers are working in the dept of finance?!?!?!
Rich ones that can afford a 2% vat increase obviously
None by the looks of it!
I’m quite surprised he admitted it. Now how about lowering VAT to make Ireland competitive and increase sales?
Stop that – talking sense is not allowed in this new Ireland.
We must follow da kommands of our new herr masters!
I wonder what colour the sky is in noonans little world, muppet. We learn this stuff in primary school, increase prices, lower demand.
Fine Gael/Labour have had a fair crack at the whip now and they are showing incompetence. Sack the whole bloody lot of ‘em. Start again. We need people that actually know what they are doing running this ship that’s heading for a cliff face. You wouldn’t employ a passenger of a ship to steer us away from it would you? Looks like we’ve done just that with this coalition. Our whole system of electing a govt has to change. These guys only care about getting re elected. Puppets is what they are! Even Muppets!!
Who shall we replace them with, considering that every person who considers running for election now has to put up with non-stop criticism way out of line, which is very personal, generally not about the policies they support and is very often a perception rather than reality. what people look like (as was the case during the presidential election) has no bearing on how a person will perform. Independents like Ming Flanagan and Michael Wallace can shout all they want from the opposition benches because they can’t do one thin in reality because they don’t have any power. That is the reason for the situation now. When FG and Labour were in opposition they were all talk too and of course they had to carry that through in their manifestos for the election. Now that they are in Government, the reality has dawned and it’s not as easy as being critical. The electorate should know that and when they start getting all exercised about ‘the lies’ they were told, it is unbelievable. If they are genuinely interested and understand politics they should be at least aware of that and not sound like empty tin cans blowing around in the wind.
Swiss style direct democracy maybe?
http://www.telegraph.co.uk/news/1435383/How-direct-democracy-makes-Switzerland-a-better-place.html
Both noonan and his salary are out of touch with reality!!!
The former should be separated from the latter!
I disagree that his salary is out of touch with reality. Noonan has a huge amount of responsibility, with ultimate control of billions of euros and the ability to improve or damage people’s quality of life with his decisions and policies. I would argue that if someone was in a position of this importance in a private company, his or her salary would be above one million, plus all the associated perks and bonuses.
So… he’s getting largely paid to equally largely screw-up?
jaysus im not an economist and i could have told him that …
It reminds me of that Simpson Movie quote “I was elected to lead, not to read”.
I think we are just going to have more and more taken off our incomes every year as long as we continue to live in this country. And we will get nothing in return for it except reduced public services. That’s why people who aren’t even unemployed are still emigrating – they don’t want to swallow this bitter pill – they want a return for working all their lives.
Yeah, great for those who can. What about the rest of us?
And what about exports u big twat.. We run a online company and sell to the rest of the EU.
We have to charge Irish VAT when we sell to our customers anywhere in the EU.
But hey I guess they are trying for force us to move to the likes of Madeira(wherever the hell that is) where the VAT rate is 14% .
Idiots, there are no other word for it.
Would it not be better to drop vat to 15% for a couple of years and really get the economy moving. They’d probably make more dropping it than rising it even more. Absolutely mad country…. sigh
Just as well you held the poll on Noonan before this news broke.
I suppose he remembered to allow for rising unemployment when calculating income tax; the increaseing number of new pensioners coming on stream following the 1946 baby boom; the reduction in capital gains tax because the markets are knackered; the fall off in VRT because we are keeping or cars longer and the increase in TD’s dry cleaning allowances as they try to remove the stench of hypocrisy from themselves !!
Lay off the man. He is only following Sie orders from Herr Merkel and Co. Soon we will be slagging off our European Overlords who wont give a flying f… as you can’t vote for them… Ah yes, a nice Democratic future to look forward to… Now get back to work Debt Slaves…
This is very concerning. Surely this should’ve have been the first on his list of cons when coming up with the proposal. I’m astounded.
Basically this bunch of clowns have less than 20/20 hindsight if they didn’t factor this into their plans. Talk about history repeating itself. A .5% increase caused drops in sales and cross-border shopping, yet somebody somewhere thought that a 2% increase would be a good idea. Even if it is only 20 quid for every 1000 spent. I’m off to buy a ticket to the same magical land that the boys in Leinster House live in, it seems to be so nice.
*Clap* *Clap* Mr. Noonan. And just to the right I read that he’s the 10th best finance minister in the EU. If that’s the case then there really is no hope for the future of the EU.
No hope for future of EU? Thank God!!
He didn’t consider? FFS, my dog could have told him that. Moron!
What an admission from Noonan! Absolutely Incredible! The man who is supposed to be in charge of the country’s finances doesn’t take into account what a 2% hike in VAT will mean for customer demand. Every man and his dog could have told him the obvious answer would be, wait for it…. less demand and drop in the tax take! What a complete and utter moron, even the last sorry excuse of a finance minister admitted that a 0.5% increase was a bad mistake and lost the exchequer €700 million. What a donkey! Just let the Germans run the bloody place ffs the more this goes on the more I despair for the people of Ireland.
Hey, lets not, the Germans want the hike in VAT! And a hike in Corporate tax. A lot of my mates have told me their companies have hinted that they will close up their offices and head to mainland Europe if corporate tax goes up.
I find this the most alarming thing I have ever heard with regards to this Country’s ability to rule itself. It is truly shocking and truly unnerving.
I can’t believe this? they didn’t factor in a 10% rise in vat on demand? (not 2% that would be a rise from 21% to 21.42%) retarded, this will surely kill off the domestic economy.
He’s either a very bad liar or a really exceptional idiot ! Perhaps he’s both.
“an increase in VAT that simultaneously avoids a rise in labour taxes, is actually a more employment-friendly policy. ”
I fundamentally disagree with this point – a PAYE increase, big or small, is an upfront decrease in disposable income, but ultimately it’s easier to budget for. You subtract the difference from your monthly budget and work within that. A VAT increase on the other hand is much more difficult to budget for because you’d need to research all the price adjustments on items you’re likely to buy, and not many people are going to do that, are they? So they’re not going to feel the effects until they want into the supermarket or HMV or Argos and see the price increases. So it’s a much more insidious form of taxation, but no less harmful to spending patterns.
Another point is that whatever about employment-friendliness, it’s very much unemployment-unfriendly, because it hits the poorest the hardest. Increasing PAYE at least takes your income into account through the band system, but VAT increases do not factor in your own circumstances, so it ends up being the least equitable way to raise taxes.
Doesn’t everyone realise we are just guinea pigs for the Germans. They want to see how far we can bend before we finally break. I can hear some cracking
Noonan you twat stop listening to Kevin Cardiff. Is the air different inside the Dail are they breathing stupid gas FFS
Is there any politician in this country capable or trustworthy. We just seem to be voting for promises that are later renegaded on. There is such an air of despair in our country at the moment that it is frighting and we have absolutely no leadership. All we ask is for transparency, accountability and if is necessary to raise revenue a demonstration that it will be spent wisely for the benefit of Ireland’s people alas I fear this is just too much of a stretch for those in power in Ireland .Our so called politicians look like children clinging on to Ms Merkle’s hand while the school bully Sarkozy takes our treats away.
Ah jaysus….so they could increase vat and not get any extra revenue? That’s just super….
Is this all a cynical ploy to entice people to spend more before the end of year
Grrrrrrrrrrr………and to think a few days ago I assumed that the department of finance……THE DEPARTMENT OF FINANCE NO LESS would have made a more detailed analysis than me. They have let me down and sullied my good name on here!! bahhumbug! and I’m a man who wants to have faith and give them a wide birth to see how not what they’re doing stacks up but how the results stack up over next 2 yrs, its hard to keep faith with this sort of basic negligence going on!
I don’t know if you could call it negligence. I doubt he’s forgotten to take the decrease in demand into account, he has simply omitted it to make the medicine go down easier.
I was trying to be nice to him, but seen as you picked up on it, I’ll call it deceitful to publish figures you know will not be the reality! grrrrrrr
That’s willful. The IMF caught the government on its proposed savings from public service number cuts, saying they wouldn’t get as much as they said they would.
Greece and Italy aren’t the only countries trying to cook books to make themselves look a bit better.
What a complete and utter knob…a 10 year old could have told him that. Jesus..is this what’s governing us?
The Panel for the vacant Auditors job in Europe is growing by the day.
Honestly, can you please think about ALL the implications of the changes your planning….
In 2010, the Department of Finance’s Tax Strategy Group estimated a 1% increase in the Higher Rate of VAT would yield about €305m, so 2% would max at €610m yield. However 2011, VAT receipts targets are more than 3% behind last years targets at this point, about €380m off forecast targets. So where did €670m even come from?
So when demand is low we are to increase prices to increase sales? Does anyone know if Noonan stated if the VAT increase was internal or external initiative? I assuming it was a demand by one of our EU partners.
I dunno I think he’s doing a great job. He’s single handedly doing wonders for trade in border regions, wrong side of the border sadly, on our side he’s decimating trade with shops closing everywhere and town cetres like ghost towns. He’s kept his promise about creating jobs… pity none of them were in our country, here we’ve lost even more jobs since he came to power. If this man could he’s tax farts as a greenhouse gas. Fooking useless.
The ministers departmental advisers must have been on a day off leaving him to make this decision on his own.
Well done Michael mc grath …. For all the haters, not all politicians are incompetent. Come on Noonan, do your homework ….
Duh!
I don’t even….
I’m not an economist or a minister for finance but I have heard of this: http://en.wikipedia.org/wiki/Deadweight_loss Maybe he should familiarise himself
sensational headline by The Journal, playing to your audience
You mean like the Journal has stated what the man said?
*sigh*
Maybe the Journal.ie should make up the news instead? Huh?
The headline cut to the chase – not lied or sensationalised – just got straight to the point!
Go watch American Fox news – then consider just how valuable reporting in the like of the Journal.ie is!
…And if you still don’t the website here, you know your free to read other news sites instead – which will report the same words… O’ dear!
It’s not a sensational headline, it is the headline of the article. It is news, not scaremongering or sensationalism. The minister said this, the article reports on it, it’s not a matt of sensationalism.
How do you arrive at that conclusion? Noonan and his minions are projecting that increasing the VAT rate by 2% will raise additional revenue of €670m. I would have thought most people with any bit of cop on would also review what might be the negative impact of such a move. Especially in light of what happened when Brian Lenihan raised it last time.
I, myself can only repeat what Winston Churchill stated:
“Those that refuse to learn from history, are doomed to repeat it!”
Clearly some in Ireland’s Dail are not learning – never mind proper accounting!
I wouldn’t call it sensationalist.
I would, however, classify it as sensational that the estimates don’t take any account of reduced demand as a result of higher VAT rates. And not sensational in that way that X factor judges like to use.
@unitedpeople blah blah
“you mean the journal has state what the man said?”
No, the Journal has not stated what the man said. They have stated what Mcgrath said, not Noonan. Do you see any quotation marks for Noonan? They have deliberately left out any context and have not quoted Noonan directly.
His point, whether you agree with it or not, is that (from tax-news.com)
‘ Noonan acknowledged that the measure he is considering will not be popular. But he pointed out, in opposition to his critics, that international economic analysis shows that an increase in VAT that simultaneously avoids a rise in labour taxes, is actually a more employment-friendly policy. “In other words, increased income taxes have a more negative effect on economic growth and jobs than increases in indirect taxes,” he said.
He also stated that, until recently, the UK operated a standard VAT rate of 17.5% while Ireland’s rate was 21%, meaning that a 3.5% differential always existed between the two jurisdictions’ rates. That the UK increased its rate to 20% in January allowed Noonan to stress that, in this context, the 3% gap that will emerge once the Irish hike takes effect, will remain lower than the one which had been in place over the past two decades.
He also addressed the claim that the proposed changes will increase cross- border shopping, arguing that an informed debate on this issue is required. “Previous studies have shown that the key driver of cross-border shopping is the currency exchange rate – not VAT rates. If tax plays a role in driving cross border shopping, it is the overall level of taxation – which combines income tax, corporation tax, excise duty, VAT and other charges.”
Noonan concluded by clarifying that there are no plans to change the various other rates of VAT which apply in Ireland. The zero rate of VAT, which applies to a range of goods and services including most food, children’s clothes and footwear, and oral medicines, will remain unchanged. There are no plans to alter the 9% rate introduced in his Jobs Initiative earlier this year, which applies mainly to tourism services including hotel and holiday accommodation, restaurant services, and various entertainment services. Equally, the 13.5% rate, applicable to residential housing, home heating oil, labour intensive services and general repairs and maintenance, will stay in place.’
The point that Geraldine was desperately trying to make to you, was that the headline is link bait. What the Journal has done is not wrong. Its not complete and they have not quoted Noonan, they have simply given an interpretation of his remarks…out of any sort of context or attempt to explain them.
You’re confirmation bias(Fox News…Groan) meant you did not see what was done.
Its all very well stating that an opinion that a tax site says but journal,ie has stated:
Quote:
In response to a parliamentary question tabled by Fianna Fáil’s finance spokesman Michael McGrath, Noonan said his estimates – which said the proposal could raise an extra €670m – did not allow for the fact that it could lead to lower sales.
End Quote.
I have not known to the journal.ie to lie before have you?
Are you claiming they are lying?
@Calweed: The article being referred to by tax-news.com isn’t referring to the same parliamentary question and response that was circulated today. In that piece, he’s being asked to comment on the notion of a VAT increase in general – not, specifically, whether the â¬670m figure supplied had included the projections for any analagous drop in consumer demand.
Calweed: The bit you long quoted was from a speech at the Dublin Chamber of Commerce.
NOT the Dail or the questioning in it!
BIG difference!
Gavan. Stop it.
You deliberately gave no attempt to put Noonan’s remarks into context.
Where did I state it was from the same Parliamentary Questions? (Straw man)
Your Headline: Noonan admits: Plans for VAT hike didn’t consider drop in demand
The inference that he would increase VAT without knowing that a price increase could cause a fall in Demand. The Tax-news site article clearly shows that a VAT hike drop in demand was considered in the context of all the other macro economic variables that go into such a decision.
He has been making his case to the Dublin Chamber of Commerce, the American chamber of Commerce and every other media outlet. There is no way you could not have had some inkling of the context of the remarks and not added even a basic attempt at giving a complete picture. Thats why an Oath says Truth, the Whole truth. Its why Auditors look for correct and complete, statements.
@Calweed – Thanks for your response. With respect, any ‘inference’ is taken on the reader’s part and not the writer’s.
Calweed – you stated something from a speech from else where.
A speech that has nothing to do with the question raised in the Dail or the given response to it.
You can quote all the other speech Noonan might have made from else where – but when you question something Noonan might have said or did say IN THE DAIL – please bother to quote what he said THERE – not something else from else where to back up your appraisal.
As it is, it stand that the Journal.ie gave a headline summarised and/or based on what Noonan said IN THE DAIL.
YOU stated “His point, whether you agree with it or not, is that… etc… etc…”
He stated NONE of that in the Dail. Stop bringing irrelevant speeches from elsewhere to your own started argument – one based on something else in a different building entirely.
Learn to tell the difference and be relevant – the at least the proper material from the proper building to back-up your allegation!
OK, reading through the comments above it would appear that Noonan dit *not* say he hasn’t considered a drop in demand but that rather that the .67 bln figure touted about is a gross figure based on current VAT figures. It appears as a deliberate account to “sex the whole thing up”.
Wether or not this is worse than ignorance is up to deliberation, in my opinion it is.
‘did not allow’……………..what a fool!
They didn’t consider the drop in demand???? It absolutely beggars belief how stupid this is. Firstly it is stupid to not have considered it and then to come out and actually admit it just dumbfounds me more. As each day goes by I am increasingly stunned at how inept and unintelligent this Government is. I didn’t think they could be any worse than the last lot but I am beginning to doubt that now.
Well if ye pay peanuts you get monkeys!
Oh ! wait a minute…
Yeh and pay bigger peanuts you get fatter monkeys. And brain dead ones at that!
What a f**king idiot!
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