Tuesday November 22, 2011

VAT To Rise By 2% Say Budget Docs "Leaked" To Germany

Finance Minister Michael Noonan said the leak was "disapponting" (Photocall)

In a highly embarrassing development for Taoiseach Enda Kenny and Finance Minister Michael Noonan, it has emerged that draft plans for Ireland's next budget, due to be announced on December 7, have been seen by politicians in Germany before being shared with the elected representatives of the Irish people.

The documents - which were leaked on Thursday to the Reuters news agency - contain controversial plans to increase the higher rate of Value Added Tax (VAT) from 21% to 23%.

Finance Minister Michael Noonan confirmed on Friday that while no government decision had been officially made, he did intend to propose at 2% increase in sales tax next month.

"I'm doing that because indirect taxes have less impact on jobs. We have to raise taxes and on this occasion I don't want to raise income tax because it destroys jobs," he said.

"I will not be touching income tax but I will recommend to the Government to accept a VAT increase. The Government has not seen my full proposals yet and certainly has not signed off on that decision."

The revelations opened up difficulties for the coalition on two fronts.

The tax measure itself is controversial, because critics believe a sales tax hurts those on low incomes most because they apply to everyone regardless of their income.

There are also fears that, in border counties, shoppers will simply travel into Northern Ireland where the VAT rate is lower.

But the other difficulty surrounds the leaking of confidential budgetary matters by foreign officials.

"Members of the German parliament have been given details of the Irish Budget three weeks before the Irish parliament and the Irish people," Fianna Fail finance spokesman Michael McGrath said in a statement.

"If this proves to be true, it would be a staggering and unprecedented breach of faith with the Irish parliament and Irish people on Budget plans. It would represent a fundamental breach of established protocols in relation to the disclosure of budgetary measures.

"We need to know whether the Irish Government has revealed the detail of its Budget plans to the German budget committee."

But whether Irish lawmakers like it or not, the sharing of budget details is part of the new reality facing the country since the loss of economic sovereignty.

Under the terms of the €85bn rescue package from the IMF/EU/ECB, budget information must be shared among all EU states.

"We have quarterly reviews every time the troika is in Dublin and this is confirmed in a formal document which is signed by the Minister for Finance and the governor of the Central Bank," said Michael Noonan.

"The document which was leaked was a preliminary draft of this document but it also contained, at the request of the commission, indications of what we might do in the Budget."

Mr Noonan said it was disappointing that the details had been leaked to German politicians.

"Germany is our new master," ran a front-page headline in the Irish Daily Mirror.

Micheal Martin, leader of Fianna Fail party, said the leak "plays to a narrative that Germany is calling shots all over Europe."

A spokesman for the European commission said it was standard procedure to copy budget proposals of bailed-out countries to all member states for approval by eurozone ministers.

"Ireland sees the same information from the troika about Greece, for example," he said. New German laws give the Bundestag the right to be fully informed before new tranches of funds are paid out.

The law forces the German finance ministry to pass on details of the Irish, Greek and Portuguese bailout packages to MPs.

A spokesman for the ministry said there was a clear procedure allowing parliament to see confidential documents belonging to countries in EU/ International Monetary Fund programs.

"We understand that the Irish authorities are upset, any leak of confidential information is regrettable," European Commission spokesman Amadeu Altafaj said in Brussels.

But he sought to shift the blame to members of Germany's Budget Committee, adding, "What happened there is the sole responsibility of the German authorities."

The leak was all the more embarrassing for Taoiseach Enda Kenny because it came just a day after German Chancellor rolled out the pomp and ceremony to welcome him to Berlin on his first official visit there.

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