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.

In this way the Government could achieve an exchequer deficit reduction of up to €2.5bn in a manner that would likely

(a) Stimulate economic growth by improving the competitiveness of Irish business.

(b) Support the job intensive service and SME sectors.

(c) Stimulate consumer spending, and

(d) Encourage tourism.

This action, coupled with measures to eliminate restrictive and anti-competitive practices in the professions, would go a long way towards dragging Ireland out of the economic and social depression in which it is currently mired.

Gerard Moran

Priory Road

Harolds Cross

Dublin 6W