Noonan confirms VAT hike after 'disappointing' release

Fri, Nov 18, 2011, 00:00

Minister for Finance Michael Noonan has described the release of the Government’s budgetary plans to German politicians as “disappointing” and confirmed the top rate of VAT will increase in Budget 2012.

The documents - which contained details of the Government's plans for a 2 percentage point  hike in the top rate of VAT to 23  per cent  and a flat rate €100 household levy - were inspected by a German parliamentary committee this week as Taoiseach Enda Kenny held talks with German chancellor Angela Merkel.

Earlier, the European Commission apologised for the embarrassing release of the document, describing it as “regrettable”. The Government complained to the commission last night over the release of the document.

Speaking in Armagh today after the North South Ministerial council meeting, Mr Kenny said the VAT hike had been agreed in negotiations with the European Central Bank (ECB), the Commission and the International Monetary Fund (IMF) troika in return for a freeze on income tax rates. However, he insisted it was only a proposal.

“I’m not in the blame game here,” the Taoiseach said. “I regret that these things which are speculative and are not signed off on should be the source of discussion in other quarters.”

Speaking this afternoon, Mr Noonan confirmed his intention to increase VAT next month. “We have quarterly reviews every time the troika is in Dublin and this is confirmed in a formal document which is signed by the Minister for Finance and the governor of the Central Bank," he said.  “The document which was leaked was a preliminary draft of this document but it also contained, at the request of the commission, indications of what we might do in the Budget.”

Mr Noonan told RTÉ radio that while no decisions have been made by the Cabinet, he has to raise indirect taxes on “this occasion”.

“I’m doing that because indirect taxes have less impact on jobs. We have to raise taxes and on this occasion I don’t want to raise income tax because it destroys jobs," he said. “I will not be touching income tax but I will recommend to the Government to accept a VAT increase. The Government have not seen my full proposals yet and certainly has not signed off on that decision."

This morning, a spokesman for European commissioner for economic and monetary affairs Olli Rehn confirmed officials in Brussels sent the Budget 2012 document to finance ministries in all 27 EU states.

“On behalf of the commission, the leaks are regrettable,” said Amadeu Altafaj Tardio. “We insist that this is a draft and that we have a legal obligation to share the information that we receive from the authorities in Dublin with the member states. This is actually our mandate.”

Mr Tardio said budget information must be shared among EU states as part of Ireland's €85 billion bailout loan deal.

“Ireland sees the same information from the troika about Greece, for example,” he said.

In a later statement, the commission's representation in Ireland said the documents “were not final and were not signed" by the Government. “Decisions on the budget have not been taken yet.”

It said as a member of the troika, the commission has a mandate to share all the relevant information with the governments.  “In the case of Germany, we understand there is a legal obligation to share this information with the budget committee of the Bundestag as it has a central role in deciding on these disbursements," it added. “What happened there is the sole responsibility of the German authorities."

Germany’s federal finance ministry confirmed yesterday that it had forwarded troika documents to the 41 member Bundestag budgetary committee in line with its legal obligation under European Financial Stability Facility guidelines.

“Without this obligation to inform the Bundestag we are unable to pay the next tranche. To free up the next tranche today in Brussels we had to inform yesterday about the EFSF legislation,” said a finance ministry spokesman.

The document, seen by The Irish Times, said the Government plans to raise VAT by 2 percentage points to 23 per cent, which would generate €670 million. The €100 a year household charge would also yield €160 million, it says. A further €100 million would be raised from a reform of capital gains tax.

Turning to budget 2013, to be presented next year, the Government says it plans to broaden the income tax base, restructure motor taxation and increase excise duty. This budget would generate an extra €1.25 billion in tax and cuts of €2.25 billion, according to the proposals, submitted by the Government to the EU-IMF troika.

The documents include two letters of intent from Mr Noonan and a memorandum marked “confidential draft”.

In this, the Minister says the Government will propose €3.8 billion of consolidation measures in the 2012 budget.

“Revenue measures to yield €1.6 billion including: an increase in the standard VAT rate; increases in other indirect taxes; a property tax; a reform of capital gains tax and capital acquisitions tax," the document said.

The manner of the document’s release led to scathing criticism of the Government by the Opposition for allowing a situation arise where German parliamentarians learned of Irish budgetary proposals before the Oireachtas had any sight or knowledge of them.

Fianna Fáil leader Micheál Martin today called for Mr Kenny to come into the Dáil and explain what he described as an “absolutely unprecedented situation”.

Sinn Féin president Gerry Adams also repeated his party’s demands for the Taoiseach to make a statement on the matter. “This is another example of how the sovereignty of this state has been handed over,” Mr Adams said.