We mentioned in a previous article that VAT is considered a regressive tax, disproportionately harder on the less well off. The second hatchet being thrown at the proposed VAT increase in the Ireland Budget 2012, is that it will take people out of Irish shops and encourage them to go over the border shopping.
So we decided to look back at how UK and Ireland VAT rates have moved in the last 10 years.
UK VAT
: Since 3-Jan-2011 this year, the standard VAT rate in the UK has stood at 20%
From 1-dec-2008 through 31st dec 2009, uk vat rates were at 15% as they tried and failed to stimulate themselves out of a recession. Other than that, it’s been 17.5% since 1991.
See UK Vat Rates
VAT in Ireland:
Irish VAT rates are expected to be increased in this Budget to 23%, effective from 1-Jan. Similar to the UK, the irish vat rate has remained unchanged for most years since 1991, in our case at 21%, with 20% operating for 14 months from 1/1/2001 and more recently we had the increase to 21.5% for 13 months from 1/12/2008. See Revenue Vat Rates for full details.
UK Vat rates compared to Ireland
For the vast majority of the period, Irish VAT rates have been 3.5% higher than UK VAT rates, at 21% v 17.5%. The biggest differential was 6% in 2009, whereas now we’re talking about a differential of just 3%.
So historically, our VAT rate is closer to the UK rate than it has been at any time in the last 10 years. And I’m quite sure this would have shaped the government’s expected decision to increase the VAT rate. But given that the VAT rates are closer than they have been in quite a while, the outcry saying that the whole country will disappear north of the border shopping rings as a little bit alarmist and I think will largely prove unfounded.
But we will find that the VAT increase will hit those worse off more than any other. In fact it is frightening and surprising that most of the cuts proposed are hardest for those at lower earning or income levels. It seems that instead of hitting you directly, the government, in the words of Ivan Yates, are choosing the route of Endemic Stealth Taxation
By John O’Connor, Red Oak Tax Refunds