A REDUCTION in VAT to deter cross-Border shopping has been ruled out by Minister for Finance Brian Lenihan.

He said he had no plans to reduce the VAT rate to the UK level of 15 per cent, adding that it was not possible to estimate the effect on exchequer revenue of tax changes in other EU member states.

"In any case, I would point out that the weakening of sterling has had a far more significant impact on relative prices than any VAT changes in that regard," he added.

"It must be recognised that our starting point is different from the UK. We already have a low taxation economy, especially in the area of direct taxation."

Mr Lenihan said the lower starting position for direct taxation made it more difficult to reduce taxes further.

Already, he added, the State was borrowing more than 10 per cent of all day-to-day spending on public services before capital spending. "This is unsustainable and we face difficult choices in bringing forward corrective measures," he added.

"The estimated €227 million, which will accrue in a full year from the VAT increase, will go some way towards funding necessary public services."

The Minister was replying to Kieran O'Donnell (FG, Limerick East) who asked if he had assessed the impact on retail sales and on VAT receipts of the differential of 6.5 per cent on VAT with Northern Ireland and Britain.

Mr O'Donnell said the Government should get the National Consumer Agency and the Competition Authority to look at the issue as a matter of urgency.

"Consumers are taking it into their own hands," Mr O'Donnell said.

They were deciding that they were overpaying and going to Northern Ireland to shop, which was costing the exchequer money and causing job losses.

Mr Lenihan said he did not have the information at his disposal relating to the extent and value of shopping by residents of the Republic in the North.

However, he intended to obtain an accurate account of its impact and he had asked the Revenue Commissioners, in conjunction with the Central Statistics Office, to look at the losses to the exchequer.

Asked when the study would be completed and the findings presented to the House, the Minister said he was not in a position to advise Mr O'Donnell on that just yet.

"The deputy will appreciate that I gave the commitment yesterday evening," he added. "I will be in a position to communicate with the deputy about that matter in the coming days."