Shoppers look set to be hit hard in the next budget after leaked documents show that the top rate of VAT will rise by 2% in next month's Budget.
The government is insisting no final decision has been made but the document which was circulated show that it is one of the indirect taxes the government hopes to introduce on December 6.
If it is confirmed VAT will go from 21% to 23%, forcing up prices on everything from electronics and white goods to services such as accounting.
Economists and retailers fear it will hold back consumer spending further threatening chances of growth in the domestic economy necessary for a full recovery.
It could also drive shoppers north of the border again where VAT rates are lower.
The document involved is called "Ireland: memorandum of economic and financial policies".
It was attached to a draft "Letter of Intent" from Finance Minister Michael Noonan and the Governor of the Central Bank, Patrick Honohan, to the IMF, ECB and the European Commission.
The draft letter was not signed by either Mr Noonan or Mr Honohan. It was dated November 2011, with a space left for the exact date.
Ireland is committed to making budgetary adjustments of €3.8bn in December's budget as part of the IMF assistance programme.
"After successive budgets in which income tax burdens were raised significantly, we have decided to focus on indirect tax increases to deliver the bulk of the €1bn additional tax effort required in 2012," the document said.
"To this end, the VAT rate is being raised by 2 percentage points to 23%, which will generate €0.67bn."
Minister Noonan said two weeks ago this was going to go to 23%, but he didn’t say when, David Murphy, RTE’s business editor told Morning Ireland
“What this document does is indicates that it is going to go up n next month’s budget. It has huge ramifications for the retail sector, it would apply to electrical goods, computers, business services like accountancy.
“The problem is that the government says people aren’t spending, well the government are going to put up prices [if this goes ahead],” said Murphy.
VAT is seen as a regressive tax as it doesn’t discriminate between the well off and the not-so well off.
Murphy said the VAT row was not linked to Enda Kenny’s trip to Berlin and that the document was given to the European commission who then gave it to the Economic and Financial Committee which has a number of member states on it.
They did not understand its sensitivity or that it was a draft document.
