VAT and PRSI cuts “unlikely”

A 1% reduction in VAT would cost the State €1 billion, and although cross-border shopping is causing a loss of tax income, “it is unlikely that a 1% or 2% cut in Irish VAT would change behaviour enough to offset the lost revenue.”

Oireachtas enterprise committee member, Leo Varadkar says a cut in VAT or employer PRSI contribution would be too costly for the Government

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Last month the Joint Oireachtas Committee on Enterprise, Trade and Employment stated it was going to recommend certain proposals to ease business costs. After hearing presentations by retailers Joe Mannion (President CSNA) and David Bagnall, and CSNA chief executive Vincent Jennings, the committee wrote that it was sending its proposals to the Minister for Enterprise and to various other committees.

Subsequently however, committee member Leo Varadkar TD (Fine Gael) told ShelfLife that it is “very unlikely” certain proposals will be accepted by Government in the next budget. In the case of a reduction of employers’ PRSI, he said that in the region of 25,000 to 30,000 jobs would have to be created or saved by a 1% cut that otherwise wouldn’t have been in order to justify its €500 million cost, but “no one has presented any serious compelling empirical case that would support this.”

Similarly, he said a 1% reduction in VAT would cost the State €1 billion, and although cross-border shopping is causing a loss of tax income, “it is unlikely that a 1% or 2% cut in Irish VAT would change behaviour enough to offset the lost revenue.”

Varadkar said however, that the case for a cut in excise is “more compelling” as empirical evidence from DIGI and Ibec suggests that a reduction may be a “revenue neutral” way of stemming the flow of cross-border shoppers attracted by cheaper alcohol.

In addition, he said that Fine Gael has put forward a “cheaper more targeted measure to exempt employers from paying PRSI on new additional employees for the first two years.” The proposal offers a more cost efficient method of alleviating some of the burden on employers, says Varadkar, so “it is possible that Lenihan may introduce this measure.”

In relation to JLC rates paid by convenience retailers, he said that government parties have made a commitment to “strengthen” the JLCs and passed a bill this September “to ensure that JLCs will not be brought down by the court cases currently underway.” He added that Fine Gael did not support the bill and in general is critical of the JLC system as “unfair to employers.”

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