Thursday 29 September 2016

VAT: the silent sting that hits household incomes hard

Published 10/05/2015 | 02:30

Bitter: Michael Noonan is no doubt pleased at how effective VAT is at extracting money from citizens
Bitter: Michael Noonan is no doubt pleased at how effective VAT is at extracting money from citizens

We complain bitterly about water charges, the property tax and the universal social charge. But you hear little about our sky-high value added tax (VAT) rates.

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This is despite the fact that our standard rate, which was increased three years ago, is one of the biggest hits to household incomes of all the austerity measures.

Budget 2012 saw the standard VAT rate rise from 21pc to a punitive 23pc. This means that almost a quarter of the cost of a huge range of goods and services goes to the Exchequer.

This increase in the standard rate to 23pc cost the average household an additional €500, according to calculations by accountancy giants Ernst & Young.

The fact that a two percentage point increase in the standard rate costs consumers so much gives an indication of just how much is being yanked from household incomes from this pernicious consumption tax.

Finance Minister Michael Noonan and the rest of the Cabinet must be well pleased with themselves that few seem to realise just how effective VAT is at extracting money from the economy.

VAT receipts were overly dependent on the building boom during the bubble years, but the Budget 2012 hike in the rate has worked to boost the returns, with households making up much of the difference, as has become the norm.

Total VAT returns have surged by €1.4bn a year since the standard rate was pushed up to 23pc.

Our standard VAT rate is a fifth higher than the international average and not far behind Hungary, which at 27pc charges the highest Vat in the world, according to the Organisation for Economic Cooperation and Development.

The standard rate applies to everything from your telephone bill to car parts. Also on the list for the high rate are detergents, diesel, fridges, furniture and furnishings, hardware, jewellery, washing machines, bottled water etc.

Curiously, Irish dancing lessons have VAT of 23pc added to their cost.

However, the rate payable on entry into lap-dancing clubs is 9pc, and the VAT rate for ballet is 0pc, as it avails of an exemption. Ballet is regarded as an educational experience, whereas our national dance is not.

And the VAT regime is full of similar anomalies.

But do not expect them to be corrected as the tax generated an whopping €11.15bn for the Exchequer last year, according to Revenue figures.

It is an indiscriminate and unjust tax, hitting those on lower incomes in a much harsher fashion that those on who are financially comfortable.

That is why Fr Sean Healy of Social Justice Ireland has described the hike in the standard rate as regressive. VAT is an indirect tax, which helps to explain why its effects are little noticed.

It's time we wised up to the silent sting that is high VAT rates.

Twitter: @CWeston_Indo

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