Cut VAT rates, public pay and welfare

THERE is a compelling case for taking the radical, counter-intuitive action of reducing the standard VAT rate of 21.5% to 10% and the reduced rate of 13.5% to 5% in the budget.

While this action would reduce tax revenue by up to €6bn, it would provide political cover for implementing an immediate reduction in the public sector pay and social welfare bills by 20%, thus reducing at a stroke public spending by up to €8.5bn.

It would also permit reducing the minimum wage by 11.5% from €8.65 to €7.65 per hour thus restoring the competitiveness of Irish labour, while minimising the effect on the purchasing power of low-paid workers.