The cut to the standard rate of VAT in the July Stimulus Package has been described as a “totally pointless exercise.”

The Taoiseach this week described the €7.4bn COVID-19 recovery package as an ‘unprecedented measures for unprecedented times.’

The plan includes €5bn of spending and €2bn in credit guarantees.

On Down to Business this morning, leading economists Com McCarthy and Jim Power gave Bobby Kerr their two cents on the plan.

Mr McCarthy noted that only €5bn of it should be classed as spending – with the vast majority of that set aside to extend schemes like the Pandemic Unemployment Payment and the Wage Subsidy.

“What was new and what I must say I found a bit irritating was the decision to cut the VAT from 23% to 21%,” he said.

He said the cut is “not cheap” for the Exchequer with around 70% of the revenue that comes from VAT taxed at 23%.

“Cutting it also in my opinion a bit pointless,” he said.

“The items that are taxed at 23% include petrol and diesel – we don’t have a lot of diesel wells in Ireland.

“Cars, if you buy a flash car you will now get a few quid off a flash car – that will create jobs in Germany.

“If you buy a case of champagne for somebody you like, you will create a few jobs in France. So, the cut is very costly, I don’t think it will stimulate a whole load of jobs in Ireland and I am really puzzled as to why they have chosen to do that.”

Main image shows a man sitting among empty seats outside the Metro Cafe in Dublin City Centre, 16-03-2020. Image: Leah Farrell/RollingNews

Meanwhile, Mr Power said the cut was a “totally pointless exercise.”

“I was stunned to be honest that it was cut from 23% to 21% - Colm has described very well the pointless nature of doing that,” he said.

“I think it would have been much more appropriate to target lower VAT rates at the sectors that are really at the cutting edge of the crisis at the moment.

“So, I was very disappointed that the hospitality sector didn’t get a cut in the VAT rate from 13.5% even to 9%.

“5% was what the sector was looking for and I think that would have been much, much more impactful in terms of helping businesses that really need help in the current situation.”

Drury Street in Dublin City Centre, 24-02-2020. Image: Eamon Farrell/RollingNews

He said there was a “lot of politics mixed up in the whole package.”

“I suppose that is probably only natural when you have three parties that should never be sitting in Government together all looking for something. They are all trying to put their stamp on it.

“At the end of the day, the VAT cut was incredibly expensive. Was it the best use of scarce resources? In my view absolutely not. I think it could have been targeted much, much more forcefully at the sectors that needed it.”

Both men also took aim at the staycation subsidy, noting that there were much more effective ways to promote tourism in Ireland.

“Sinn Féin made the point that the beneficiaries of this scheme will get €125 back if you pay tax but if you are not employed and you don’t have a regular income, you don’t get anything,” said Mr McCarty.

“This is a subsidy to the Dublin middle classes to buzz of down the country. It is a middle-class subsidy and I don’t think it is very effective either.”

You can listen back to the full interview here: