Surging VAT reflects optimism - Cowen

The surging VAT receipts recorded in the first quarter of the year are the result of simple consumer confidence, according to Minister for Finance Brian Cowen.

Mr Cowen said yesterday that Irish consumers are "showing confidence in their own finances and in their own prospects."

First-quarter Exchequer returns, released on Monday, showed that VAT receipts had come in €139 million ahead of expectations.

For the same period, receipts from income tax were slightly behind forecasts. This could imply that incomes have not been rising at the same rate as spending.

The Minister did not entertain suggestions that the boost in VAT could have been fuelled by irresponsible borrowing, however. "I think it's just an indication of the level of confidence there is in the economy, particularly in the retail side," he said.

The Minister said he would not "dictate" to people on borrowing.

"Everyone has to ensure in relation to their credit arrangements that they have a sustainable position," he said. "They're well aware of their own financial arrangements."

Mr Cowen was speaking before addressing an IFSC conference organised by financial newsletter, Finance Dublin.

When asked about the controversy over reinsurance activities at the IFSC, the Minister reiterated the position of Ifsra chief executive, Liam O'Reilly.

"We have high standards and we intend to keep them. Anyone who doesn't meet those standards will face the regulatory sanction in due course," Mr Cowen said.

He later told Finance Dublin conference delegates that the "clear emphasis" at EU level was on the convergence of regulatory practices.

Mr Cowen's predecessor, Charlie McCreevy, had earlier told the conference that in his capacity as internal market commissioner, he would work against regulation that ties companies up in "rolls of red tape".

He said the Commission would instead take a "selective" approach to regulation. It may, he said, consider regulating credit agencies or clearing and settlement services over the next few years.

Mr McCreevy also reassured his IFSC audience with news that the Commission is preparing a proposal on the levy of VAT on outsourced financial services that can be discussed with member states and service providers.

The move follows a European Court of Justice decision which found that outsourced insurance services should attract VAT.

The decision gave rise to concerns in the IFSC, where outsourced financial services have delivered strong growth over the past few years.