VAT - why only 0.5% cut

Dirk Gently

I didn't catch the budget speech, just (trying to) listen to Joan burtons response at the moment. I see they've dropped the VAT rate by 0.5% back to the old 21% rate. She seemed to welcome that as one of the only good points in the budget as she reckons the 0.5% increase sent people racing north to shop. I think the damage was long done before the rise tbh and the rise only added some fuel to an already blazing fire.

Is it not wholly inadequate though. Surely they could have slashed VAT a lot more with the aim of competing with the North / uk. All we have done is go back to square one again. It was reported recently that the North is coming out of recession, with southern shoppers playing no small part in that. Not bad for a province with such a high proportion of people employed publicly.

Is there any agreed / disputed cut off point where a reduced VAT rate yields greater income through more sales at the lower rate. Surely 21% is still far too high a cut off point and a good few more percentage points lower would pull in more money through greater spending. I'm genuinely amazed, more so than anything else that he cut it by so little.

zootroid

Personally, I would like to see the Australian rate introduced here - 10%.

VAT is a regressive tax as it puts a higher burden on low income earners, and so I think it should be lowered considerably for this reason, as well as stemming the tide of shoppers to the north.

But, as with things like this, the impact on the state finances would need to be examined. I would imagine it would help stimulate economic activity, but such things are difficult to measure and forecast. It is much easier to forecast the amount of tax revenue lost as a direct result of lowering VAT.

Dirk Gently

zootroid wrote: »

It is much easier to forecast the amount of tax revenue lost as a direct result of lowering VAT.

but any forecast would have to assume a static low level of spending in order to calculate a loss from cutting the rate. Realistically the 0.5% drop is not going to stimulate anything so all they've achieved is a cut in Vat income. Surely even a best guess at increased spending at a lower rate of VAT is better than a token cut of 0.5%. There must be an example of what happens when a vat rate is cut and the resulting increase in consumer spend. Even a very rough estimate should make it clear that it is better to cut VAT by more than 0.5%.

Is it a case that they reckon even a massive cut is not enough to compete with UK prices?

Agent J

0.5% is nothing.

It will see the retailers keeping the difference because the price drop will be little.

Even when the UK ups its vat in Jan it will only go up to 17.5% so we still have a 3.5% difference.

clansman

Will that .05% take affect tonight? Or on the 1st for January

RGS

Another idiotic move--either reduce it to a proper level to stop cross border shopping or leave it alone.

As stated this will only reduce the VAT take.

Patser

Lenihan admitted earlier this year that his raising of VAT by .5% last year was a mistake, especially when the UK dropped their rate to 15%. Whatever about how little difference that makes to prices, it reinforced sentiments that we were being fleeced. Having admitted it a mistake, not to remove it would send out a worse signal, ie that he knew he was wrong but couldn't be bothered changing it.

Interestingly the UK rate was raised to 17.5% today (what it had been originally last year), so with the cost cutting going on in Dunnes/Tesco saouth of the border, the new relative VAT rates will close the gap in groceries slightly more and maybe dissuade a few more travelling North. And anything more kept in Ireland is a benefit (even if small).

Dirk Gently

Do you not think it was a missed opportunity though, especially as it was widely known the uk vat rate was rising to 17.5% We had a chance here to level the playing field, with the UK government actually giving us a hand in doing so by raising their rate.

CityCentreMan

Until today, our VAT rate of 21.5% was competing head on with the 15% rate in the UK making our VAT more than a third higher than in the north.

Like many other posters here I would like to have seen the VAT rate going down by more than 0.5% but given the current state of the economy, I think that it is the most that could be afforded.

Taken in conjunction with the reduction in Duty, it will push us further in terms of our competitive position v the UK, particularly the north.

From Jan 2010, the rate in the north goes from 15% to 17.5%. We will still have a much higher rate but it is now only 20% higher than the 33% that applies now.

Furthermore, in recent times, we have thankfully regained our sense of "value for money" which had been lost in the heady days of the "Celtic Tiger".

In my business, we are dealing with the general public and the price of absolutely everything is being queried and reduced. As a nation, our haggling skills are developing at an incredible pace and this is forcing costs down.

During the "good" times, we lost our competitive competitive position as a result of a series of incremental moves in the wrong direction. As I see it , we now need, and thankfully are getting, rapid incremental moves back towards competitiveness.

This is an important step in the right direction.