Targeted financial support rather than VAT cuts are a better way of providing assistance to business sectors impacted by Covid-19 the Governor of the Central Bank has said.
Gabriel Makhlouf said that cuts in VAT may have their place in supporting businesses but said it should not be the main measure.
"I tend to be sceptical about using tax as a measure to provide support from Government. It may have its place but it is much better to look at providing direct support because it enables you to target that support much more effectively and efficiently," he said.
Various businesses sectors have been making repeated calls for VAT reductions to stimulus customer spending, in particular, the hospitality and tourism sector.
Mr Makhlouf, who was speaking on RTÉ’s This Week show, said further support measures by the Government should be targeted and temporary.
He also addressed the ongoing issue of interest payments on mortgage accounts where payment breaks are in place.
Mr Makhlouf was speaking after the Tánaiste and Minister for Enterprise, Trade and Employment Leo Varadkar said banks "talk you down with regulatory gobbledygook" and that his assumption when dealing with banks was not to fully trusts them until they had demonstrated otherwise.
Banks have been accused of profiteering from the mortgage and loan payment breaks by charging interest over the period of suspension and claiming they were relying on the advice from the European Banking Authority.
Speaking on RTÉ's The Business, Mr Varadkar said the banks "have form" when it comes to profits and pointed to the tracker mortgage scandal.
Mr Makhlouf said the European Banking Authority made it clear at the beginning of April that it was actually open to banks to charge interest or not to charge interest.
"The focus right now is what will happen in the future with these payment breaks because the longer we go on the less sustainable a payment break is. We are very focused on finding out with the banks what are their plans."
On this issue of profiteering, he said: "They are going to make losses this year. The decision at the end of the day, whether or not to charge interest, is a commercial one for them to make in the context of their operations."
Mr Makhlouf would not speculate as to how many payment breaks might turn into serious arrears once the payment break period ends but said another mortgage arrears crisis is something they want to avoid.
"Lenders and borrowers should make every effort to talk to each other early if they feel their situation will not be resolved by a short-term payment break."