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Simon Cocks

Budget 2011: Alcohol and cigarette levies would send trade away - Lenihan

New levies on alcohol would send further shoppers to the North, while cigarette levies would play into the hands of smugglers.

BRIAN LENIHAN has said he considered increasing the excise duties on the “old reliables” of alcohol and cigarettes in yesterday’s Budget – but decided against doing so after being convinced that raising either would do more harm than good to the economy.

Speaking on RTÉ’s Today with Pat Kenny programme – where Lenihan traditionally appears on the morning after Budgets to take calls from the public – Lenihan said he had been advised by his officials that increasing the duty on cigarettes would have only served to send further custom to criminal gangs smuggling cigarettes into the state illegally.

On a similar vein, Lenihan had reduced the excise on alcohol by 5c per pint last year, and had left it static this year, because he felt that slapping a further increase on the price of a pint would send shoppers across the border to Northern Ireland where alcohol is traditionally cheaper.

The finance minister – who said he had worked “day and night for the last two and a half years” trying to resolve Ireland’s financial problems – also said he would table new legislation as early as next week which would see the subordinated bondholders of state-owned banks being forced into accepting discounts on the value of their investments.

That move is likely to attract the fire of AIB’s subordinated bondholders, who last week met to discuss launching a legal challenge to any such proposals.

There would be no entertaining proposals to schedule a default on senior bondholders in the banks, however, saying the notion that it would assist Ireland was “entirely wrong”.

“A small country like Ireland cannot default without the support of a central bank because you have to have the bank loaded with cash while you’re engaged in such a default and it’s not feasible for us to do this,” he said.

“People should not be surprised that there’s a huge erosion of trust in the Irish banking system when we’ve an endless debate on whether we should be defaulting.”