New home buyers hit again by 1% VAT hike

VAT: KPMG expressed surprise at the Minister's decision to "further inflate new house prices" and pointed out that the VAT increase would also affect the hotel sector, restaurants, hairdressers, cinemas, gyms, newspapers and garage repairs.

First-time home-buyers were squeezed again yesterday as Mr McCreevy raised the lower rate of VAT by one percentage point. New homes are one of a series of goods which will be hit by the surprise move, which comes after the removal of the first-time buyers' grant in the Estimates.

The measure, which will come into force on January 1st, 2003, is expected to bring an extra €187 million to the Exchequer next year and €224.5 million in a full year.

The Irish Home Builders Association (IHBA) was quick to condemn the Minister's action, which will add almost €1,800 to the cost of the average new house on the basis of the most recent Permanent Tsb/ESRI house price survey.

"New housing in the UK is charged at zero rate of VAT. That helps to keep the price down for the buyer but in Ireland, the Government seems intent on increasing the cost to the buyer," the IHBA said in a statement.

Estate agent Sherry FitzGerald said the rise in VAT on new homes to 13.5 per cent overshadowed the increase in mortgage relief announced for first-time buyers.

"In a period when increased living costs have resulted in Ireland losing its international competitiveness, further increases being triggered in this area are disappointing," a KPMG spokeswoman said.

Mr Brendan Leahy, chief executive of the Irish Tourist Industry Confederation, said the increase was an unwelcome development for a labour-intensive industry. "At 12.5 per cent, VAT on tourism services in Ireland was already second-highest in the euro zone," he said. "The increase to 13.5 per cent will add to tourism costs."

Irish Hotels Federation president Mr Jim Murphy pointed out that visitor accommodation in Spain, France and Portugal attracted VAT at rates of between 5 and 7 per cent.

The national tax partner of Deloitte & Touche, Mr Pat Cullen, said: "The costs of hotel accommodation, restaurant meals, car hire and even golf green fees are all set to rise as a result of the VAT increase."

He also warned that commercial property investors would be even more inclined to take their money abroad due to the VAT measure and the increase in stamp duty.