Chambers Ireland has called on the Government to reduce the rate of VAT in the upcoming budget, rather than cutting income tax rates, reports Caroline Madden.

In its pre-budget submission, Chambers Ireland - the largest business body in the country - recommended a 3 per cent reduction in the standard rate of VAT, which is currently at 21 per cent.

The organisation - which is the umbrella body for Chambers of Commerce - said this approach would be less inflationary and more equitable than lowering headline income tax.

"By cutting VAT instead of income tax, consumers would benefit in terms of more money in their pockets and reduced prices," its chief executive, John Dunne, said yesterday. "One-third of the population doesn't pay income tax, whereas cutting indirect taxation benefits all consumers."

Chambers Ireland's second key recommendation to the Government is to replace stamp duty with a property tax which would be "ring-fenced for local authority spending". Mr Dunne suggested that this could take the form of a "site value tax", which would not apply to principal private residences but would be levied on individuals owning a number of property investments.

"The Tanáiste recently suggested that the Exchequer could afford to abolish stamp duty and forgo the €3 billion generated from that tax," Mr Dunne said. "Local communities would be transformed by such an injection of discretionary funding."