Finance Minister Michael Noonan has defended his plan to increase the top rate of VAT by two points to 23% in the forthcoming Budget.
He told the Dublin Chamber of Commerce tonight that international economic analysis had shown that higher income taxes had a more negative effect on jobs than increases in indirect taxes such as VAT. He added that many EU countries had also raised VAT rates.
Mr Noonan also said the three-point gap between Irish and UK VAT rates after the proposed increase would still be lower than the 3.5-point difference that was in place throughout the 1990s and 2000s.
Responding to suggestions that the VAT move would increase cross-border shopping, he also argued that exchange rates, rather than VAT, were the main factor.
The Minister said there were no plans to change the zero rate of VAT on goods and services such as food, children's clothes and footwear and oral medicines.
He also said there would be no changes to the 13.5% rate or the lower 9% rate brought in earlier this year - which applies mainly to tourism-linked services.
Earlier, Fianna Fáil's Micheal Martin criticised the Taoiseach for his 'disregard' for the Dail after 41 members of the German parliament learned about the two-point VAT increase before members of the Dáil.
Mr Martin asked if the document, seen by German parliamentarians, had been lodged in the Dail library.
He said now is the worst time to introduce a VAT increase, describing it as an attack on jobs and small businesses.
The Cabinet met today to discuss proposals for cuts to current spending in advance of the Budget.
