Food and medicine face VAT hikes to cut costs

FOOD and medicines could be hit by major VAT increases under emergency measures drawn up by the Finance Department which would see health, welfare and school spending slashed.

Briefing documents compiled by senior department officials for Finance Minister Michael Noonan warn the economic situation is worse than feared at the last budget and outline drastic options for righting the state’s financial imbalance.

Scrapping the zero VAT rating for food, oral medicine and books, as well as pushing such items up to a new band below the standard rate, is one controversial revenue-raising measure outlined in the heavily censored papers released under Freedom of Information.

Increasing home heating fuel from its current reduced rate to the standard 21% is also outlined in moves which would put further pressure on families already trying to cope with mortgage hikes.

Meanwhile, the document states that some 9,000 HSE jobs need to be cut in the next three years with €420 million sliced off health spending.

It comes as Health Minister James Reilly said a second voluntary redundancy scheme for HSE staff will be introduced.

Just over 2,000 personnel left the health authority under voluntary and early retirement schemes over a three-week period last November, far below the expected figure of 5,000.

Dr Reilly said a second scheme was essential to give people more time to consider a life-changing decision. And, he said, the scheme would focus on people that were no longer needed.

The briefing documents say social welfare spending, which at €20.6 billion accounts for 38% of state expenditure, is also in the firing line for cuts with the universal system of giving child benefit payments to higher earners attacked as “difficult to justify”.

Major reform of how other benefits are paid is also needed with the payment of half-rate jobseeker’s benefit or illness benefit to recipients of One Parent Family Payment highlighted for review in the documents.

Concern at the small savings achieved in education spending under the Croke Park deal is noted, with officials warning only €39m of the agreed €379m savings have yet been made.

Reductions in student allowances or increases to third-level fees and school transport charges are also outlined.

Also, experts believe the introduction of universal health insurance would push up HSE costs as treatment expectations would be higher.