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THERE ARE 59 days to the Budget with much debate still to take place between now and 14 October on what the government should spend and cutback on.
But in the second in a series of articles Dr Daragh McGreal, an economic advisor to the independent TD Stephen Donnelly, drills down into the issue of Value Added Tax, which most of us know as VAT, and whether there is scope for cuts or changes to the way it is levied…
ANYONE WHO HAS watched Only Fools and Horses remembers ‘no income tax, no VAT’ from the jingle.
The boys belonged to a grey area of the economy outside the prying eyes of Her Majesty’s Revenue & Customs and were loved for their wheeler dealing. But when you’re not dealing with the Del Boys of this world, VAT is unavoidable.
In Ireland, consumers pay VAT on most goods and services, apart from food and some other exceptions, and its purpose is to raise revenue. At the height of the boom in 2007, we took in €14.5bn through VAT, but this had fallen to €9.7bn by 2011. The recession had hit our wallets and we hadn’t started spending again.
Because of the big budget deficit, the government needed to raise revenue and to show the Troika that Ireland was serious about its deficit. So in early 2012 it changed the standard VAT rate from 21 per cent to 23 per cent.
This change made the rate one of the highest in the world and was the tenth rate change since 2000. As consumers, we face fluctuating rates more often than consumers in any other EU state. This makes consumption more dependent on government decisions and out of the hands of the consumer.
Increasing and decreasing rates can lead to greater or less tax intake, but it is a fine balancing act. Increased revenue can accrue if consumers really need the goods or are prepared to pay more.
When the rate changed in 2012, VAT intake increased from €9.7bn to €10.2bn because people were more prepared to buy the goods than they were put off by the increase in VAT by 2 per cent.
Economists call this inelastic demand.
TASC says that 98 per cent of the taxes paid by the poorest are taken up by taxes such as VAT and excise duties. This is in spite of in-built structures aimed at protecting lower income groups: no VAT is paid on food, as people need to eat; no VAT is paid on children’s clothes, as children need to be clothed; and no VAT is paid on medicines, as people need to be cured.
These goods are ‘zero-rated’ to lighten the load for the less well off. But as the ESRI says that the most recent change to the VAT rate increased spending by the poorest by 1 per cent and by the richest by 0.4 per cent, the system is still weighted in favour of the well-off.
VAT in Ireland is also unusual because of the high number of reduced rates or exemptions. This sets us apart from other EU states. VAT on hairdressing services is charged at 9 per cent, VAT on works of art is charged at 13.5 per cent, and VAT on the supply of greyhounds is charged at 4.8 per cent. This makes the system haphazard and unpredictable.
So how could the Government make VAT fairer and clearer?
The first option could be to reduce the rate again. TASC says the rate could fall to 22 per cent this year, at a cost of €350m, and to 21 per cent in 2016. This would bring Ireland more in line with other EU countries and would ease the financial strain on poorer people.
On the other hand, it would cost the state money at a time when it needs to save, and it wouldn’t address the holes in the system.
The second option could be to increase some of the reduced rates to the standard rate. This would mean more money for the state and could be done progressively. With this stability, the standard rate could be reduced in time.
Alternatively, the state could apply a uniform rate to all goods and service and provide a tax rebate to low income households. VAT would be the same on all products but the poorest would be able to reclaim a portion of the amount they pay.
This would be progressive and would make the system more coherent. But such a system would require greater administration and would need time to be implemented, neither of which solves the immediate budget deficit.
Over the past decade, VAT has accounted for about 30 per cent of total tax intake, despite the messiness of the system and the frequency with which our governments have tinkered with rates. The system could be made more stable.
Dr Daragh Mc Greal is an economist and human rights consultant currently working with Stephen Donnelly TD on Budget 2015 and other policies.
Poll: What would you be in favour of the Government doing? Do we…
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Makes no difference who you vote for, You still get the WEF government
@087 bed: WEF? – World Economic Forum?
@087 bed: see https://conspiracychart.com for all things NWO, chemtrails, chipping, and replacement theories.
@9QRixo8H: Are you a qualified tool or still an apprentice, All you do here is push disinformation in the comments.
I wonder if the same secret service would protect Netanyahou…. That could solve a lot of problems
@Dominic Leleu: and potential assassins should be vetted by the NRA to ensure a more positive outcome. Might be an idea to invite putin, xi, orban and others
@Alan: agreed
When thinking about Simon Coveney , this a verbatim quote
Owning your own home is not a bad aspiration, but if there was more certainty in the rental market in Ireland, you would see more people choosing to rent and to invest in rental property,” said Coveney.
“The attitude towards long-term rental is changing in Ireland and we need to respond to that with market conditions that reinforce and encourage that change of mindset.”
@Andrew Kiely: what’s your point?
@SYaxJ2Ts: His point is, that Coveney’s prophecy, hope & implementation of same came through in Govt policy & is part of the problem today. It wouldn’t affect you Kevin as a Govt lackey on a big salary, but it affects thousands of young working Irish people who are paying extortionate rent & who can’t buy or afford a home in Ireland today.
@SV3tN8M4: context is key here, and I don’t know when this quote is from, but surely certainty in the rental market is a good thing, albeit aspirational rather than real? You know, some security of tenure, rent certainty, that kind of thing. Anything to add here? Or are you just going to sling insults
@SV3tN8M4: and any chance of backing up your claim from yesterday that SF will introduce sleight of hand legislation to increase granting of asylum applications? I’ve asked twice already. Surely you’ve managed to find the relevant evidence by now
@SV3tN8M4: I suppose all those people the Gardai have charged were all working very hard to buy a house and provide for their families. Most of them staying in the city centre at the taxpayers cost
@Peter Byrne: Wouldn’t know Peter, don’t have anything to do with them, too busy working trying to make ends meet & pay my mortgage. You must be a happy man today that you & your buddies got a top up of 750,000, you might get your bumper Exit package & NDA now. Harris likes to reward Deceit & Incompetence, some of those in your organization are no better than those you judged above.
@Andrew Kiely:
I’ve just spent a week in Metz France.
As in other European cities all accommodation within the city is in apartments. Apartments cannot be used for property speculation. If an apartment is unoccupied for an extended period it has to be sold back to the freehold company (owners association).
If you want to live in a house – to go to a village 10 -20 km out.
Buttimer has repeatedly been rejected by the cork electorate, and now finally by his own party. Maybe this time the penny will drop
@mickey mac: Once Fine Gael learned that Buttimer was attending pro-Palestinian events that was end for him.
@mickey mac: He is left there for Tokenistic reasons by Fine Gael.
Simon Coveney looked well, which is important in politics. But after that he lacked leadership. He fronted up the ‘ same-s marriage’ referendum by parroting the party line and adding in his own daughters. One of them might be that way.
Fair point but not compelling. let them have all the rights of marriage, but call it something else. Marriage always meant man and woman.
Neologisms are used every day to overturn the established order.
For example – gender was a grammatical term to distinguish three different forms of a noun. Male and female got into it because they were two obvious categories. But there was never a case of an obvious male having a female noun form or visa versa.
Generally a neuter gender noun is a noun that denotes a lifeless thing. A thing which is neither male nor female.
But as anyone who learned French knows a pen and a pencil have different genders even though they both are technically neuter.
La plume de ma tante
Le crayon de ma tante
In fact there is no neuter gender in French. An omission which the French chattering class are struggling to cope with.
Anyhow this is a long way from Simon Coveney – other than to point out that weak leaders are easily pushed into fronting up anything which a mob (nowadays a Twitter mob) wants.
There is certainly a FG seat in Cork SC, especially as it’s now a 5 seater. Going to a battle royal between Úna McCarthy and Shane O Callaghan to whose ahead after the first count. That’s vital. As it’s extremely unlikely both will get elected
have your say