Minister gave boot to call for tax on children's shoes
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FINANCE Minister Brian Lenihan was given the option by his officials of imposing VAT on children's shoes as he drew up plans for last October's budget, the Sunday Independent has learned.
Briefing material prepared by Department of Finance reveals Mr Lenihan was advised that the imposition of the standard 21 per cent VAT rate on the zero-rated items of food, children's clothes and shoes, books and oral medicines, would raise around €1bn.
Mr Lenihan decided against the move, no doubt mindful of the fate of former Finance Minister John Bruton when he attempted to introduce the Dickensian measure on budget night in January 1982 and two independents voted against the budget, causing the government to fall.
Other documents released under the Freedom of Information Act reveal just how hopelessly inaccurate the forecasts Mr Lenihan received from his officials were in the lead in to the last Budget.
According to the minister's briefing material, his advisers noted that the Government would need to raise €2bn in additional taxes to keep "within fiscal targets".
Only last Thursday, Mr Lenihan himself told the Dail how the Government's projected tax revenues for 2009 had plunged by another €3bn since January alone.
As the country's economic fortunes continue to decline, it is understood the minister will now need to find savings and tax increases to the tune of €6bn this year.
Those disturbing figures put the strategising of the Department of Finance for the Budget in even starker relief.
According to the documents, the half-of-one per cent increase on VAT to 21.5 per cent -- which Mr Lenihan ultimately acceded to -- was only ever projected to deliver €208m for the State's coffers in 2009, or €227m in a full year.
Finance officials wrote: "The €227m raised by this VAT increase will go some way towards funding necessary costs in Exchequer spending."
And while Mr Lenihan may have admitted his decision to increase the rate of VAT had been a "mistake" that sent out the "wrong signal", his officials appear to have been confident it would do little to damage the economy.
In a section comparing the Irish and British VAT regimes, they noted how Ireland imposed a 13.5 per cent levy on "many goods and services" where the UK charges 17.5 per cent.
Among the goods and services which Finance officials pointed out as offering better value -- at least in terms of VAT -- in Ireland were hairdressing, laundry, shoe repair, TV and car repairs, driving instruction and photographic services.
They also identified the tourism sector, including accommodation, restaurants, car hire, as services on which a 13.5 per cent VAT rate is applied in Ireland.
- RONALD QUINLAN
