MINISTER FOR Finance Brian Lenihan has conceded that the increase in the VAT rate in last October’s budget had “sent out the wrong signals”.
Mr Lenihan made his remarks when addressing the annual lunch of the Sutton-Howth chamber of commerce in Dublin last Friday. He was referring to the loss of trade in the Republic caused by the high number of shoppers going North to avail of cheaper goods.
Mr Lenihan increased the Republic’s VAT rate from 21 per cent to 21.5 per cent, while his British counterpart, chancellor of the exchequer Alastair Darling, cut the British rate from 17.5 per cent to to 15 per cent.
A spokesman for Mr Lenihan told The Irish Timesyesterday: "The major reason for cross-Border shopping, and the price _differential, is the exchange rate.
“The Minister did say that, given the number of people going shopping in the North, the VAT increase had sent out the wrong signals at the time.”
Dublin Fianna Fáil MEP Eoin Ryan, who attended the lunch, recalled Mr Lenihan saying that on reflection, the VAT increase was a mistake.
“However, he did say that the main reason for losing trade to the North was the currency differential.”
Mr Ryan said he, too, believed that the main reason why shoppers from the Republic were going North was the currency differential.
“The British now concede that reducing the VAT rate was a mistake. The British exchequer lost money and the move failed to stimulate the economy.”
Labour European Parliament candidate in the South, Senator Alan Kelly, said that the Minister’s VAT decision must be reversed in next month’s budget.
“The fact is that the total budget package last October was a disaster and a mistake.
“It failed to deal with the deteriorating economic situation, did nothing to halt the rise in unemployment and targeted the wrong people.”
Retail Ireland, the Ibec group representing the Irish retail sector, said that the Minister’s 0.5 per cent increase in VAT was a mistake and had served to stimulate cross-Border shopping.
