Dr. Tom McDonnell:

There is a short answer and a long answer to that question. I will give the Deputy the long answer. All these measures, whether they account for €400 million, €600 million or €800 million, have opportunity costs. By doing this, something else is being given up. That is just a fact. It means less money for education, no second-tier child benefit, not making public transport free or no income tax reduction for workers, and making workers pay for it, whatever it might be. There is, therefore, a cost. Whether there is an employment effect, which might be possible from this change, and it creates X number of jobs, not doing something else will mean losing Y number of jobs. It is not simply a case of looking at it in terms of what the VAT rate would do for that one sector at that time. We have to look at the entire economy and all the impacts that happen.

The second thing is that over the medium- to long-term, we have a looming fiscal crisis. We know it is very difficult to raise taxes, so the better thing to do is not to reduce them in the first place unless you absolutely have to. The correct time to reduce tax is during a recession and not during a boom. We have a record level of employment. We are up by 500,000 jobs in the last six years. The economy has never been stronger. There has been growth in all sectors over the last six years, including in accommodation and food services. Business failure rates are not particularly high by historical levels, so it is not evident as of yet that there is a crisis within the sector. The evidence suggests, thus far, that is not the case. Would reducing the rate of VAT from 13.5% to 9% increase employment in that specific sector? It might do so on the margins. It is also worth noting that sector is very large relative to peer countries in the rest of western Europe. It is already a large sector compared to its analogues in other western European countries, which would suggest that maybe the sector is already too big. I am not saying it is, but it would suggest that the potential areas of growth in the economy are elsewhere.

Equally, we would be pushing money into a sector that is incapable of generating good jobs. What I mean are jobs producing at least the median wage, into the €40,000, and things like that. That sector will not do that. I am not saying there is not a case and I do think there is an argument for finding a way to protect the coffee shops. We think the better way to do it is a medium-term strategy of reducing the things like energy costs and the other professional services costs and things like that which benefit the economy as a whole. We think that is a better way to do it and that it would benefit those businesses. Capping it, at least, would provide a way of minimising the cost and protecting the coffee shops, while not having this massive deadweight loss going to fast food joints or whatever it might be. We are saying there might be a better way to do this.