The controversial move will see the current VAT rate on goods and services rise from 21 to 21.5% with effect from December 1, 2008.

Zero percent VAT on children's clothes, food and certain medicines, however, will stay unchanged, as will the 13.5% rate levied on gas, electricity and new properties.

Despite this, the news that VAT will increase for all goods and services has raised considerable objection from several business organistions, who have all disapproved of the move, fearing that the rise will deter consumers from spending money, and may even force them to consider shopping in other countries as a consequence.

Upon hearing the news, Torlach Denihan, director general of employers' group IBEC stated:

“The decision by the Minister for Finance to increase the VAT rate by 0.5% to 21.5% in the Budget is likely to prove counterproductive. The increase in VAT makes Ireland less competitive by comparison with our nearest neighbour, Britain where the VAT rate is 17.5% and will compound the problem of people crossing the border to shop.

"It is not the time to increase VAT when consumer confidence is at an all time low and retail sales have fallen sharply for the first time since the late 1980s. The Minister’s decision to increase VAT is likely to lead to a further fall in retail sales," he added.

However, Mr O'Sullivan did show some support for the government's plans to plough more money into the country's education, energy and research sectors.

Joining O'Sullivan in his campaign against the VAT rise, Avine McNally, assistant director of the Small Firms' Association, also commented on the possible disadvantages that could arise from the new measure:

"With the increase in online purchasing, which knows no borders, and the current strong Euro, we need an incentive for people to continue buying in Ireland, thus supporting the economy and jobs here," she explained, going on to add:

"An increase in the VAT rate in a time of negative growth simply saps business confidence and reduces consumer spending," he said. "Any gains to the exchequer may well be negated by the lower spending. In addition, businesses will have to cope with the cost of amending their accounting systems."

Earlier this week, economic experts warned Finance Minister Brian Lenihan against raising too many taxes in this week's budget, suggesting that such measures will merely hit average taxpayers even harder in the pocket at a time when they are also grappling with rising inflation.