CHRISTMAS shoppers are scrambling to buy toys, drink, CDs and cigarettes before the 2pc VAT hike on December 7.
The price of hundreds of everyday items will rise, costing the average household more than €500 a year, analysts say.
Finance Minister Michael Noonan was forced to admit that he plans to increase VAT from 21pc to 23pc on Budget Day after a confidential Irish briefing document was leaked from a German parliament finance committee.
Business group IBEC said the rate would be three points higher here than in the North and would "further depress consumer spending and delay the recovery".
But Mr Noonan argued that was no VAT on food and predicted the increase would affect "wealthier people" most because they spend more on luxury goods. The move was essential to avoid a rise in income taxes, which "would be more detrimental to jobs".
The standard rate of VAT is charged on many goods, including alcohol, beer, wine and spirits; tobacco and cigarettes; petrol and diesel; non-oral cosmetics; detergents; pet food; paper; toys and bottled water; jewellery; TVs, CDs and computers; fridges; washing machines and furniture; tools, hardware, lawnmowers, machinery, car parts and accessories.
"We have to raise taxes and on this occasion I don't want to raise income tax because it destroys jobs," Mr Noonan said.
"I will not be touching income tax but I will recommend to the Government to accept a VAT increase. The Government have not seen my full proposals yet and certainly has not signed off on that decision."
The leaked documents, which angered and embarrassed the Government, also reveal there will be a €100 home tax, reform of welfare entitlements, savings in the public sector wage bill and €750m savings from cutting capital projects.
The proposal to increase VAT rates drew a furious response from the Opposition and business groups, with warnings that it would send shoppers flocking once more across the border.
Dublin Chamber of Commerce said it was "highly concerned" about "the impact on consumer confidence and the highly depressed domestic market." Retail Ireland said the planned VAT increase was a further blow to shopkeepers in addition to the collapse in consumer spending.
Its chairman, Frank Gleeson, said it would undermine the domestic recovery.
"The run-up to the busy Christmas trading period is the worst possible time of year to make these announcements," he said.
A TD in Mr Noonan's own party came out in opposition to the VAT hike. Fine Gael TD John Deasy said the Coalition needed to find the necessary adjustment next year in existing Government services and programmes.
"I am totally against this hike in VAT right now and I think it demonstrates a total lack of understanding about what is happening in the retail sector in particular," he said.
Fianna Fail leader Micheal Martin called on the Taoiseach to explain how the German parliament was given access to details about the upcoming Budget. Taoiseach Enda Kenny said he had "noted the comments" on the document.