The embattled Government was today forced to drop the price of a pint to stem the tide of shoppers flowing into border towns to stock up on drink.
As a growing number of car-loads travelled to Northern Ireland in the run-up to Christmas, a pint was cut by 12 cent, while 14 cent was knocked off a glass of spirits and 60 cent off a bottle of wine.
Bucking the trend in recent Budgets, Finance Minister Brian Lenihan finally took strong action to help the suffering retail sector.
“I expect the drinks industry to play its part in making the cost of alcohol more competitive,” he warned in the Dáil.
“If I find this reduction has not been passed on to the consumer I will reverse today’s reduction.”
Mr Lenihan also reversed the VAT rate back to 21% – after an extra 0.5% increase was imposed in October 2008 – and tried to combat the massive trade in cigarette smuggling by not increasing excise on tobacco.
Kieran Tobin, of the Drinks Industry Group of Ireland (DIGI), said the 20% reduction in excise was a great relief to consumers and retailers and will repatriate some of the revenue being lost to cross-border trade.
“We have consistently said that our high level of excise that subjects consumers to the highest alcohol taxes in Europe has been a major factor in encouraging cross-border shopping,” he said.
“With alcohol a key driver of cross-border trade, this announcement will change recent patterns of cross-border shopping and will provide a real stimulus to the wider economy by encouraging people to shop and socialise locally.”
Retail Ireland believe the measures will help reduce the numbers going north to shop.
Director Torlach Denihan said: “The purchase of alcohol is a major factor in the increase in cross-border shopping, which is resulting in a massive loss in revenue to the exchequer and 11,000 job losses in the retail sector this year.”
Ian Talbot, chief executive of Chambers Ireland, said the reduction in excise duties on alcohol and return of VAT rate will stimulating business activity and Ireland’s economic recovery.
But Sonya Manzor, a partner in William Fry Tax Advisors, believes more could have been done.
“If the minister is looking to stem cross-border shopping he should have gone further and matched the 17.5% rate in the UK,” she added.
Elsewhere anti smoking campaigners criticised the Government for not hiking up the price of cigarettes.
Dr Brian Maurer, medical director of the Irish Heart Foundation claimed politicians have failed to protect another generation of young people from the horror of nicotine addiction.
“It is proven the price is the most effective deterrent to young people taking up smoking and to encourage existing smokers to quit,” he added.