Oireachtas Joint and Select Committees

Wednesday, 23 November 2022

Committee on Budgetary Oversight

Report of the Commission on Taxation and Welfare: Discussion (Resumed)

Mr. Adrian Cummins:

I thank the committee for the invitation to attend this meeting to discuss chapters 6, 7, 8 and 14 of the Commission on Taxation and Welfare report. The commission has produced a comprehensive report that deserves the attention of all who take an interest in public policy. The RAI broadly welcomes the board’s report but we have serious concerns regarding its proposal around the temporary VAT schemes. It is our view that Ireland should place at its economic centre a low-tax and indigenous enterprise-driven economy, with continuous full employment as its target.

Let me start by focusing on chapter 6 of the commission report, which discusses the need for tax space. I would specifically zone in on the suggestion by the commission’s recommendation of the gradual increase of the VAT rate from its current 9% to 13.5%. The sector I represent, which is the restaurant and hospitality industry in Ireland, suffered immensely during the banking crisis, through the Covid pandemic and now faces further economic disruption due to the energy crisis. When the Government reduced the VAT rate to 9% in 2013, it made an enormous difference in terms of viability for low-margin, consumer-driven and labour-intensive sectors such as restaurants and hospitality. It saved businesses and jobs, and it made Ireland competitive. The Commission on Taxation and Welfare is wrong when it advocates for scrapping the temporary VAT rate. The 9% VAT rate is the correct one for restaurants that are vulnerable, have low margins, are high energy uses and are SMEs. Increasing the VAT rate for hospitality to 13.5% will make Ireland have the second-highest rate for restaurants and hospitality within the EU, with only Denmark having a higher VAT rate for these industries.

I refer to the universal social charge, which I might remind the committee was brought in as a temporary measure. We must review our tax system in terms of making work pay. What I mean by this is in our sector we have a vast number of valuable employees who, due to the taxation system, are being penalised for working more than 20 hours in certain circumstances. From the feedback received from our industry we know the incentive to work longer is prohibited due to the taxation system. In chapter 7 of the report, the commission sets out its recommendations for significant reworking of capital acquisitions tax, CAT, and capital gains tax, CGT. The 33% rate of CGT is high comparing with international rates. A reduction in the rate would improve the environment for start-ups and new businesses, which would increase activity levels within the economy and create employment and a tax dividend for the country. A reduction in CGT should be looked at as a recommendation.

Chapter 8 refers to pension contributions and I have to point out to the committee that pension auto-enrolment will add extra costs to the employer. We must plan for the future in terms of pension contributions for citizens and this must be done to alleviate the cost for employers. I will move on to chapter 14, which focuses on land and property. The RAI supports the commission’s recommendation on the introduction of site value tax, which would replace the current commercial rates scheme over time. Commercial rates are outdated and need a severe overhaul in how they are calculated. Tax is distributed and we must have a level playing pitch when it comes to determining which business pays what level of tax. We thank the committee for its time and we look forward to having an opportunity to discuss the report in more detail and to answer any questions related to it.

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