Call to reverse VAT hike as recession bites

Finance Minister Brian Lenihan was tonight urged to reverse last year’s VAT increase as the latest economic figures revealed the recession deepening at the fastest rate on record.

The last three months of 2008 saw the economy shrink by a massive 7.5% with consumer spending taking a huge downturn as cross-border shopping took hold.

Mr Lenihan has been warned by advisors the push for cheaper goods in the North, driven by the VAT increase and weak Sterling, will cost the country €240m by the end of this year.

Arthur Morgan, Sinn Féin finance spokesman, called on the Government to reverse the tax rise and begin steps towards harmonising the rate on both sides of the border.

“Finance Minister Brian Lenihan will have to reverse his decision in last October’s budget and ultimately look towards establishing a harmonised all-Ireland VAT rate in conjunction with his counterpart in the Northern Assembly,” he said.

“The Government will have to stop focusing on saving their friends in the banking sector and begin focusing on jobs.”

Mr Lenihan increased VAT by a half percentage to 21.5% in last October’s Budget while the British Chancellor Alastair Darling reduced the rate by two and a half points to 15% to stimulate spending.

According to the Central Statistics Office, Gross Domestic Product – the value of all goods and services produced in Ireland – fell by a massive 7.5% in the final three months of last year as consumer spending dropped and industrial output took a severe hit.

But the biggest dent in the downturn has been felt in the area of capital investment, which saw the amount of money pumped into large public and private projects fall by almost a third.

The worrying report said GDP for the year as a whole fell by 2.3% – the biggest drop since 1983 and 1958.

A Government spokesman said ministers discussed the worsening figures at its special Cabinet meeting on the Budget.

The CSO report showed Ireland went into recession – officially defined as the economy shrinking for two consecutive quarters – last June and even though there was a slight improvement in the third quarter as multi-nationals performed well, the run-up to Christmas saw a devastating drop.

IBEC senior economist Fergal O’Brien warned companies trading overseas were facing dramatic falls in business.

“Companies are now experiencing the full force of the global recession,” he said.

“In the very short-term, Government must support enterprise and business in order to preserve as much employment as possible during this period of exceptional international turmoil.

“However, in order to be ready to reap the benefits of the global economic upturn, which may materialise as soon as 2010, Ireland must improve its competitiveness. This will require a reduction in all prices across the economy.”