The VAT

Budget-day coming up at the end of this week in Ireland. More thoughts for the Finance Minister to consider. I was after driving to Waterford the other day and found myself tuning in half-way through a magazine programme in which a tax-expert was enumerating some of the anomalies in the system of Value Added Tax. VAT is where the Irish Government, like others in the European Union, claws some cash out of the economy as it bumbles along past the Revenue Commissioners (as we quaintly call our Tax-men in neo-19th Century Ireland).  Governments see two benefits from taxing the people 1) to raise revenue for the numerous tasks and services that governments carry out for the rest of us and a distant second 2) attempt to modify our behaviour into more desirable avenues; however and by whomever that might be defined: hence the punitive tax levied on alcohol and tobacco.

From the 19th Century, if not before, the inheritors of The Enlightenment in Britain did away with the taxation of books and newspapers with the laudably Victorian ideal that there should be no tax on knowledge. Ireland inherited the principle at independence. When VAT was introduced in 1972, this sentiment was supported by making printed material zero rated. That has continued through inertia and fear that change will lose somebody's vote ever since. Somewhere along the line newspapers were recognised to have no knowledge content and are now VATed at 9%. e-Books are new and have been deemed to be a different product entirely and taxable at the top rate, which in Ireland is a frightening 23%.

In 1972 the church had considerable clout in Ireland so candles, white, tapered, wax were and are zero rated.  Food is zero rated but luxury food is 23%. "Luxury" has been defined by the weasily mind of lawyers and, as always with lawyers, the richest client secures the best judgement. Famously, in a decision fought up through the British court system, the repellently artificial Jaffa Cake [R] was defined as a cake (luxury 23%) rather than a biscuit (staple 0%) on the grounds that it went hard as it got stale.  Biscuits, as any fule kno, go soft.  And it is easy for The Press to wheel out risible examples to compare: bottled water, tooth-paste, toilet paper are all 23% luxuries presumably because our 1972 ancestors used tap-water (and proper order too, that's why we make it "potable"), baking-soda and old newspaper (zero rated as above!).  Potato waffles, steak & kidney pudding, caviar and sugar are all food at 0%.  The tax-boffin on the wireless explained the difference in rate between a cheesecake mix including and excluding the crumb-base but my brain melted and I can't remember which is taxed at the higher rate.

Just as the church secured the ear of The Man, and special treatment for their business, so did stock-brokers: their services are zero-rated. Oral medicines are all zero rated, including the contraceptive pill, but condoms are rated 23% - which maybe a social manipulation tax, condoms being less reliable than The Pill.  But it's probable that the anomaly just is.  Medical devices - catheters, wheel-chairs, commodes, incontinence pads - are taxed at top rate but a stretch limo (public transport) is zero rated. Hiring a back-hoe or a bulldozer is 23% but if hired with a driver it is a service and only costs you 13.5% extra.

The Campaign for VAT Reform, points out that when VAT in the Hospitality "Industry" was lowered to 9% a couple of budgets ago, it is estimated to have created more than 20,000 jobs. This shows that tricking about with the tax-base can have socially and economically desirable effects.  I don't know if the net tax take of the change is better but that's 20,000 families who are better off and needing €50 million less from social welfare. SIPTU, the main union in the industry are now campaigning to remove this support because research suggests that hoteliers are not actually passing the reduction on to customers. Therefore SIPTU believes the greater good is served by getting more VAT from people who eat out to help those on social welfare who barely have enough to eat in. Suggestions where a change in the rate of VAT could act for The Common Good include:

• Melanoma: lower rate on sunscreen (23%) and raise it on sunbeds (0%)
• Obesity, dental caries: raise rate on sugar (0%) and sugar-rich foods (0%)
• Heart disease: raise rate on salty food (0%)
• Diabetes: eliminate VAT on (injectable) insulin
• Revolution: raise rate on race horses (4.8%)
• Eutrophication of rivers: raise rate on bulk pelleted fertiliser (0%)
• Safety: lower rate on kit - safety helmets, life-jackets, safety-belts, smoke-detectors, fire extinguishers all 23%
• Culture: equilibrate ballet lessons (0%) and Irish trad dance lessons (23%)
• Energy: explain solar panels (23%) vs coal (13.5%), I can't

Hear an interview with Reformist Brian Collins.  And you, dear EU reader, will like to start investigating the rates and oddities in your own country. I've advocated before the desirability of  a root and branch re-think of how we, as a nation,  raise and spend money.