In a written reply to a parliamentary question from Deputy Joe McHugh on Tuesday, the Minister for Finance, Brian Lenihan said with regard to the VAT differential between Ireland and the UK, given the current Exchequer deficit position, the policy decision of increasing the standard VAT rate in Budget 2009 ‘continues to be necessary in order to support the public finances’

The reply has outraged an Inishowen businessman who when contacted by us agreed to talk but asked not to be publicly named..

He told the ‘Journal’: “This is not good news. This could wipe us out totally.”

And the Inishowen business man had a suggestion: “Why doesn’t the Minister have a six month trial where our VAT rate and the North’s rate are level. If his overall tax take on consumer goods doesn’t increase he can then go back to the old rate. He should at least give it a try.”

In his question Deputy McHugh asked the Minister if he would revise the 21.5% VAT rate on a basket of goods likely to be Christmas gifts in view of the fact that the Northern Ireland VAT rate on these goods is 15%, and that Ireland lost €700m to Northern Ireland in cross-border shopping in 2008.

The Minister replied: “Although the UK cut its standard rate of VAT from 17.5% to 15% on a temporary basis from 1 December 2008 to the end of 2009, at the same time they increased excise duty on alcohol, cigarettes, petrol and diesel in order to offset the 2.5% reduction in VAT on these items. Consequently there was no reduction in the price of these products in Northern Ireland as a result of the reduction in the UK VAT.”

Minister Lenihan pointed out too that the VAT rate was not the only factor in the price differential between North and South of the border claiming the weakening of sterling has had a far more significant impact on relative prices than any VAT changes.

‘He doesn’t get it”

Speaking with the Journal yesterday, Deputy McHugh said: "Minister Lenihan just doesn't get it. Last month I asked him to at least sit down with the British Chancellor of the Exchequer before framing his Budget in order to discuss economic issues in the province of Ulster. In reply Minister Lenihan said that he would not meet Chancellor Darling before the Budget. That refusal is on the Dáil record.

"Christmas is massive for retailers, and the futures of many struggling businesses in our area will be determined this winter. The Budget is an ideal opportunity for the Government to introduce indirect tax changes that would bolster the Border economy. Bolstering the Border economy is in Minister Lenihan's interest, because his tax intake from this region is way down. 21.5% of nothing is zero.

"Recently Government backbenchers have been making a lot of noise about issues surrounding proposals to reduce the drink--driving limit. In light of that, the silence of Fianna Fáil TDs from Donegal, Cavan, Monaghan, and Louth on the Border business crisis is deafening.