The main causes of what are fairly significant price differentials between purchases in Northern Ireland and the Republic, are:
- Operating costs
- Profit taking in the Republic
- Taxes - VAT is lower in Northern Ireland
- £ / € FX rate
The £/ € relationship depreciated around 30% between January and December 2008. £0.94 buys a €1 on March 20th 2009. While changes in the standard VAT rates have widened some price differentials, their impact remains small compared to the size of the change in the FX rate.
The report estimates the potential loss in Irish Exchequer revenues due to cross-border shopping arising from reduced VAT and excise yields in 2008 at between €58m and €90m (the higher estimate represents under 0.5% of the total VAT and excise revenue in 2008). In addition to the VAT and excise loss, there is a possible corporation tax revenue loss that is tentatively estimated to be in the range of €15m to €24m. However, all estimates for corporation tax revenue are indicative of the potential loss.
If the £/€ exchange rate remains at close to current levels, the estimated VAT and excise revenue loss is put at between €72m and €112m, and a possible corporation tax revenue loss in the range of €20m to €31m.
The Irish taxpayer is, of course, acutally paying for some stretches of the road network in Northern Ireland, as a peace dividend, so naturally Irish citizens would wish to use the roads they paid for! I have to buy a new kitchen sink tomorrow. The price in Dublin is €380 and the price in Newry is €240. An exotic tap that goes with it costs €500 in Dublin and €300 in Newry. As taxes and levies are being piled on in the Republic, what option do shoppers have only to seek out the best value.
Retail sales in the Republic dropped by 20% in 2008 and have reverted to 2004 levels. The drop was aggravated by the 42% decline in the sales of new vehicles, according to the Central Statistics Office. Tax revenues in the Republic January 2009 were down by 19%, including a drop in corporation tax from €196 million to €121 million and stamp taxes (mainly on property transactions) dropped from €80 million to €50 million.