Taoiseach Enda Kenny has defended the proposal to increase VAT by 2% in the December Budget.

Reacting to criticism from the employers' group IBEC and business interests in border counties, Mr Kenny said the Government has to make unpalatable choices to rebuild the economy.

Speaking in Co Limerick, the Taoiseach said that while the Government has not made a decision on the issue, the Minister for Finance has said he will propose a 2% increase in VAT to 23%.

Mr Kenny said he has made it clear for some time that he did not want to increase income tax and many people he spoke to would prefer not to have their salary cheque reduced.

He said he believes income tax increases would kill jobs and he wanted to get people off the dole and back to work.

Mr Kenny also said that currency fluctuations have a greater impact on cross border trade than VAT increases.

The Taoiseach said the VAT increase would not apply to food, children's clothing or services, but would apply to goods like televisions or washing machines where people make choices.

Mr Kenny said the Government had a mandate from the people to sort out the public finances.

He said the Government has to rebuild the economy, which has fallen asunder and at the same time protect the vulnerable, front-line services and get people back to work.

Fianna Fáil leader Micheál Martin called on the Government not to ''frontload'' the VAT increase in Budget.

Speaking at the party’s National Councillors' Convention in Mullingar, he said the rate rise would not help consumer confidence, which was vital in encouraging people to spend again.