Kenny: VAT hike gives people more choice than income tax rise

Taoiseach Enda Kenny has claimed that targeting VAT increases over income tax in the Budget will give people a choice on how they spend their money.

After the first of three tough Cabinet meetings this week to find €3.8bn savings, the Government confirmed the six-month-old tourism tax rate has been protected.

The Taoiseach, under pressure over possible child benefit cuts, also revealed a special VAT exemption on some food, children’s clothing and footwear and oral medicines would be maintained.

And the hospitality trade breathed a huge sigh of relief after Transport Minister Leo Varadkar pledged to keep the 9% VAT rate on tourism products including hotels, restaurants, leisure businesses and cinema and theatre tickets.

“Increases in income tax are a direct hit at people who want to have a choice on what they spend their money on and what their purchases are and the consequences,” Mr Kenny said.

“As far as the Government is concerned, we want to focus on not impeding on the chance of people going to work.”

Both the Taoiseach and Finance Minister Michael Noonan have been under severe pressure over plans to increase the standard top rate of VAT by 2% to 23% – and the fact the measure was being assessed by German parliamentarians before TDs.

Fianna Fáil leader Micheal Martin accused him of putting jobs at risk, saying a VAT rise would damage businesses and ultimately lead to job losses.

“Minister Michael Noonan has made it clear that the decision has been taken on the 2%. You should stop maintaining fiction,” he said.

“The ESRI has said this VAT increase will hit the poorest households the most. Stop maintaining the fiction and make an indication that you will reverse this decision.”

Sinn Féin TD Gerry Adams also criticised the Government’s stance on VAT.

“The issue of VAT is one which will destroy small to medium businesses,” said Mr Adams.

Mr Kenny went on to point out that while Ireland is only increasing VAT by 2%, the UK will have increased its VAT by 2.5% two years running.

The Government is in the midst of tough negotiations on how it makes its €3.8bn adjustment – €2.2bin of which will be saved through spending cuts, and €1.6bn through tax hikes.

The Taoiseach was also forced to play down speculation that child benefit will be cut as part of efforts to make savings of €3.8bn.

On his way into the first of three successive Cabinet meetings to discuss the Budget this morning, he insisted that job creation and protecting the vulnerable are the Government’s main focus.

It is believed €10 a month could be shaved off child benefits – a massive knock to low and middle-income families.

“The preparation of any Budget, particularly if you have to take €3.8bn out of the economy, is always sensitive, is always difficult and is always unpalatable,” Mr Kenny said.

“It would be lovely to stand here and say everything is rosy in the garden. Everything is not rosy in the garden and Government have a set of very difficult choices to make here and get the balance between the focus on jobs and job creation and the protection of those who are vulnerable.”

There have also been reports that social welfare could be hit, with cuts of eight euro a week off dole payments.

Meanwhile, Mr Noonan denied rumours of a rift among the two coalition Government parties or between the front and backbenches.

Social Protection Minister Joan Burton yesterday pledged to oppose cuts to child benefits in accordance with the Labour Party’s pre-election promise to protect them.

But Mr Noonan said that everyone involved is aware that all cuts so far discussed have been part of the Programme for Government.

“Backbenchers are very loyal, they know the situation,” he said.

“Most of what’s been discussed has been part of the Programmes for Government and part of the election campaigns.”

Mr Varadkar told the Good Food Ireland conference today that the tourism tax rate would remain the same because it benefits local businesses.

“The Government introduced the lower VAT rate of 9% earlier this year in the Jobs Initiative,” said Minister Varadkar.

“This rate is significant because it principally benefits home-grown employers which are based in Ireland.”

He said the vast majority of these businesses are Irish-owned, their profits stay in the country and the low rate had helped boost the tourism industry.

“Many operators moved quickly to pass the VAT cut on to their customers following its introduction. Even where the rate was not passed on, it still benefited the tourism industry by helping businesses to expand their operations or take on additional staff,” he said.