The 2% Vat increase which takes effect at midnight tonight will further depress consumer sentiment at a time when the domestic economy is at its weakest point, according to Fianna Fáil Finance Spokesperson Michael McGrath.
Deputy McGrath stated, “The Government’s decision to increase the standard rate of Vat by 2% to 23% from midnight tonight is a major policy mistake. At a time when the export sector is facing into its most challenging period for a number of years, it is essential that the domestic economy is given every possible support. Instead, the decision to increase Vat by 2% sends out all the wrong signals to consumers and will only serve to further deflate confidence. The decision is also a kick in the teeth for the thousands of small and medium sized Irish businesses struggling to keep their doors open.
“Minister Noonan’s admission that his estimate of a full year yield of €670 million from the 2% Vat increase takes no account of the demand effect of the measure underlines the lack of a coherent economic strategy on the part of Government.
“Consumers are, by necessity for the most part, more price sensitive than ever before. This Vat increase will inevitably affect shopping patterns and will undoubtedly cause further job losses in an already distressed retail sector, particularly in the early part of 2012. In some cases, for example in car sales, the Vat increase could well mean the difference between a consumer going ahead with the purchase or not.
“Research by the ESRI demonstrates that the Vat increase will disproportionately affect poorer households. The unquestionably regressive nature of the package of measures in December’s budget will become apparent in the coming weeks as the full effects of the budget emerge. This regressive budget was clearly dominated by Fine Gael ideology, with Labour’s input virtually invisible.
“Ultimately, this Government’s first budget will be judged by how it helps to make inroads into Ireland’s unemployment crisis in 2012. Last May’s Jobs Initiative has failed to yield the promised employment dividend. In fact, the live register has increased by over 7,000 since this Government came to office last March. Budget 2012 promised much and only time will tell whether it delivers the improved exchequer returns and new jobs that we all want to see.”