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Kenny fury over VAT rise leaked across Europe

DETAILS of December's Budget were leaked to several EU countries, it was claimed today.

The EU/IMF Troika was today blaming the European Commission for "mistakenly forwarding" the sensitive budget document to Germany and other EU countries.

The gaffe has caused major embarrassment for the Government who have lodged a complaint with the Commission.

The details emerged in the German Bundestag yesterday but sources now say that the EC sent the document to all member states on the EU's Economic and Financial Committee.

The most significant detail in the paperwork approved by Finance Minister Michael Noonan is a proposed increase in the main VAT rate from 21pc to 23pc.

If Mr Noonan follows true on Budget Day, it will result in families paying more than €700 a year in VAT.

The Government has complained to the European Commission about the release of the document, which identifies austerity measures of €3.8bn in the December Budget and another €3.5bn in 2013.

The leak of the document sparked a furious political row, with Taoiseach Enda Kenny insisting no decision has been made with regard to the details of the Budget.

Minister for Public Expenditure and Reform, Brendan Howlin said it was "profoundly worrying" that the documents, which form part of the negotiating process with the Troika, would surface in a German parliamentary committee.

"I don't know where the document came from," Mr Howlin said on RTE's Prime Time.

The documents obtained by Reuters news agency show the Government will increase the top rate of VAT by 2pc in next month's Budget and make up the rest of the €1bn it is targeting through indirect taxes.

The document was attached to a draft "Letter of Intent" from Mr Noonan and Central Bank Governor, Patrick Honohan, to the IMF, ECB and the EC.

A spokesman for the Department of Finance insisted that no decisions had yet been made on tax charges.

Jarlath O'Keefe, a partner with Ernst & Young, said households would find it impossible to avoid the higher VAT charge.

"VAT increases alone, would on average, cost €500 per household annually," he said.

"Together with other indirect tax measures, such as excise duties, the figure could go to €700 plus per household."

Dermot Jewell of the Consumers Association said pushing up the top VAT rate would mean that the majority of bills would rise for people. "It beggars belief that the German parliament is told about this before the Dail," he said.

Cigarettes, beer, wine, computers, cosmetics, diesel, petrol, tools, TVs, detergents and car parts are all set to be dearer as the top rate of VAT rises to 23pc.

The 2pc VAT increase would generate €670m while next month's Budget would also contain a €100-a-year household charge, yielding €160m, the document says. A further €100m would be raised from a reform of capital gains tax.

For Budget 2013, the Government says it plans to broaden the income tax base, restructure moto tax and increase excise duty. The Budget would generate an extra €1.25bn in tax and cuts of €2.25bn, according to proposals.

Sean Murphy, of Chambers Ireland, warned the Government that the last time it hiked VAT in 2008, the yield from the tax collapsed.