Dr. Tom McDonnell:

We have relied upon the analysis of the Department of Finance and the Commission on Taxation and Welfare. Obviously, international bodies have looked at reduced consumption taxes for particular sectors. The broad consensus is that rather than having reduced rates, you could reduce the overall VAT rate but not provide the reduced rates. The context for this as well is that there are already subsidies provided through the reduced rate through the tune of billions of euro per year. That rarely seems to be acknowledged. The reality is that yes, the hospitality sector is a very important part of the economy - nobody disagrees with that. For context, it is the lowest-paid sector in the economy. Broadly speaking, the jobs the sector provides are, on average, not what one would normally consider good jobs, relative to jobs in other sectors.

I also note the facts are that employment in the accommodation and food service sector has grown by something in the region of 10% to 12% over the past six years. The normal level of employment growth for an advanced economy on an economy-wide basis is approximately 1.2% over the past quarter century or even half a century. The accommodation and food service sector in Ireland has not been performing badly, at least thus far. If it performs badly in the future, it might not even be about cost bases. It could simply be that the economy and workers are transitioning to higher value added jobs, where they can get higher wages. When you have a very low unemployment rate, as we do at the moment, that gives workers options to transfer into different occupations which are better paid. Even if we were to continue with employment growth into the future, I anticipate it does not necessarily mean there will be growth in accommodation and food services. However, it is not because of a cost base or anything like that. It is simply that there is a productivity issue, which is perhaps not resolvable because of the nature of that sector.

I agree with the Senator; they are very important hubs. A lot of the €600 million or €800 million or whatever it might be will go to fast food joints. There is a lot of deadweight loss. A lot of it is going to businesses that are already very successful. Almost by definition, the more successful you are, the more you will benefit. That is something we need to watch. If the reduced VAT rate is to be introduced, it could be done on a temporary, experimental basis, rather than a permanent basis, to see what happens. We could look at it as an experiment. Did it save jobs? Did it reduce costs in the sector? Alternatively, the value of the VAT could be capped, which would reduce the benefits that go to the big franchises so there is less wastage for the State and money that could be spent elsewhere but it would still benefit the local coffee shops, for example. There is perhaps a way of squaring the circle on that.