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VAT Hike Expected In Ireland's December Budget

by Jason Gorringe,, London

21 November 2011

Irish consumers could be subject to an earlier than expected value added tax (VAT) hike, after documents were leaked to the German parliament showing plans to include the measure in the upcoming Budget.

According to the documents, the Irish government will increase the standard rate of VAT to 23% at the Budget, to be delivered by Finance Minister Michael Noonan next month. This 2% hike is expected to generate EUR670m (USD907m) toward the EUR1bn in additional tax revenue needed over the next year. The papers go on to say that, after previous Budgets added to the income tax burden, this one will instead concentrate on indirect tax efforts.

Irish Exchequer reports show that VAT receipts have been consistently weak throughout this financial year, resulting in likely downside risk to targets at the Budget. When Noonan wrote to the European Union and International Monetary Fund in August, detailing the government's projected fiscal course over the next three years, he included VAT-related measures among the government's plans.

However, changes to the rate of VAT were not expected to come into force for some time. Indeed, Noonan's letter explicitly stated that the government would begin making the necessary provisions in the first quarter of 2012, with rate increases intended for 2013 and 2014.

Several government ministers have denied that the documents contain information confirmed as being in the Budget. Prime Minister Enda Kenny and his deputy Eamon Gilmore stressed that no decision had been made in the Cabinet regarding the Budget and expressed irritation at the German parliament's acquisition of the papers. Public spending minister Brendan Howlin has said that the government was concerned to uncover the source of the leak.

TAGS: tax | economics | value added tax (VAT) | Ireland | fiscal policy | budget | International Monetary Fund (IMF) | tax rates | Germany | tax reform | individual income tax | European Union (EU) | Europe

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