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Government expects VAT hike to hit sales by 1.8 per cent

Estimates for tax income in 2012 indicate that the government doesn’t expect the VAT hike to have a major impact on shoppers.

Image: Sasko Lazarov/Photocall Ireland

THE GOVERNMENT has insisted that the 2 per cent hike in VAT coming into effect next week will not have a major impact on the value of retail sales next year.

Finance minister Michael Noonan says the government expects its VAT income to be around €265 million higher next year than it will be in 2011 – largely as a result of the VAT hike.

When discounting the effect of the jobs initiative, however – which cut the VAT on some products and services from 13.5 to 9 per cent earlier this year – the overall difference would be an increase of €445 million.

On the basis that the 2 per cent hike in VAT – from 21 per cent to 23 – will bring in €560 million, the figure quoted when the Budget was delivered earlier this month, the value of retail sales will fall by around 1.8 per cent next year.

Data on retail sales produced by the CSO earlier this week showed that sales in November were down by around 0.7 per cent on the same time last year – with November’s figures marking the first time in 2011 that sales had increased on the previous month.

David Fitzsimons, chief executive of Retail Excellence Ireland, said the projection that sales would only fall by around 1.8 per cent next year was “probably a little optimistic on the part of the government”.

“Recent history would indicate that the projections the Department of Finance have provided regarding VAT have been significantly overforecasted,” he said.

“It could be over-optimistic – we hope it isn’t.”

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Gavan Reilly

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