Excise duty on alcohol is to be cut and the VAT rate restored to 21 per cent in an attempt to stem the flow of cross-Border shopping, Minister for Finance Brian Lenihan has said.
This announcement came as Alistair Darling confirmed that the UK VAT rate will return to 17.5 per cent, from the current rate of 15 per cent, on January 1st 2010.
This year has seen a major increase in cross-Border trade as thousands of consumers stocked up on cheaper alcohol and groceries in Northern Ireland.
In his Budget speech, Mr Lehihan said that the main reason behind cross-Border spending has been the currency differential, which is outside our control. However it is in our power to reduce consumption taxes, he said.
Excise duty will be reduced by 12 cent per pint of beer and cider, 14 cent per half-glass of spirits and 60 cent per standard bottle of wine.
The Minister warned that these reductions will be reversed if they are not passed on to consumers. Excise on tobacco will remain unchanged as the current high prices are giving rise to smuggling, he said.
In a further attempt to stem the migration of shoppers across the Border, the Minister announced the reversal of the 0.5 per cent increase to the top rate of VAT imposed in October 2008. The highest rate will be restored to 21 per cent from the current 21.5 per cent in January.
The Republic currently has the highest excise rates in Europe for wine and the second-highest for beer and spirits and cider. The drinks sector had repeatedly called on the Government to reduce excise duty to save jobs.
There was broad welcome among the retail and hospitality sector for the reduction in excise duty on alcohol.
The Irish Hotels Federation (IHF) welcomed the measures aimed at driving tourism to the country, describing them as “reasonable and realistic”. The group particularly approved of the decision to maintain the tourism marketing fund, the reduction in excise duty on alcohol, and the implementation of a voucher scheme aimed at providing discounted travel to senior citizens from abroad who are visiting Ireland.
IHF president Matthew Ryan said the measures introduced in the Budget were a significant step towards correcting the public finances. “We particularly welcome the acknowledgement by Government of the important role of tourism in the economy,” he said.
“Overall, the budget represents a decisive approach to getting the country back on its feet and restoring confidence in the economy both nationally and internationally.” Overseas trips to Ireland have fallen almost 14 per cent in 2009.
The efficiency review of local authorities that was promised by Mr Lenihan was also welcomed, with the IHF claiming current inefficiencies were having a “disastrous, knock-on impact” on rates charged to businesses.
The Chairman of the Drinks Industry Group of Ireland (DIGI), Kieran Tobin said the 20 per cent decrease in excise duty would come as a great relief to consumers, retailers, and the pub and hospitality sectors.
“We have consistently said that our high level of excise that subjects consumers to the highest alcohol taxes in Europe, has been a major factor in encouraging cross-border shopping,” he said.
"With alcohol a key driver of cross-border trade, this announcement will change recent patterns of cross-border shopping and will provide a real stimulus to the wider economy by encouraging people to shop and socialise locally.”
The Vintners' Federation of Ireland (VFI), which represents almost 5,000 licensed premises outside Dublin, also welcomed the move
“The reduction in excise will hopefully reduce the price differential to such a point that it is no longer worthwhile to travel outside the Republic to save money,” said VFI president Val Hanley. “This should increase our competitiveness and keep revenue in the country.” The group said it was confident the prices decreases would be passed on to consumers quickly.
Retail Ireland director Torlach Denihan said he believed the cut in excise duty would reduce cross-Border shopping. “Every 150 cross-Border shopping trips now costs one job and anything that can be done to reverse this will help to maintain jobs,” he said.
The Irish Medical Organisation (IMO) criticised the decision to reduce excise duty on alcohol. Former IMO president Prof Joe Barry said heavy drinkers and young drinkers are particularly attracted by cheap alcohol. "The measures announced today will only add to the problems of under age drinking.”
Prof Barry noted the Council of the European Union had last week asked all member states to consider pricing policy when addressing alcohol-related harm. “Clearly and unfortunately, this Budget goes in the opposite direction. These measures only go towards increasing pressure on an already under-pressure health service.
He said it was “equally disappointing” that no increase on tobacco was announced.