Jack Chambers (Dublin West, Fianna Fail) | Oireachtas source

As the Deputy will be aware, the 9% VAT rate was applied on a temporary basis to the hospitality and tourism sectors until 31 August 2023 when it reverted to the 13.5% rate. The 9% rate was introduced on 1 November 2020 in recognition of the fact that the tourism and hospitality sectors were among those most impacted by the public health restrictions put in place throughout the pandemic. The economic rationale for a VAT rate reduction at that time, as it was in 2011 when it was also reduced to 9%, was to lower consumer prices, encouraging higher demand, more output and an increase in employment.

Despite facing successive headwinds over recent years, the domestic economy has proven to be remarkably resilient. Looking ahead as inflation eases, the real disposable income of households should recover and support consumer spending. As a result, households are on a stronger financial footing and this will support demand for contact-intensive services, including the tourism and hospitality sectors.

With regard to employment, between the end of 2020 when the 9% rate was reintroduced and the final quarter of 2023 total economy-wide, employment expanded from 2.3 million to reach a record high of 2.7 million, an increase of more than 17%. The fourth quarter 2023 labour force survey indicated that employment in the accommodation and food service sector stood at 183,000. It is important to remember that VAT reductions, even temporary VAT reductions, have a cost to the Exchequer. The estimated cost of the 9% VAT rate for tourism and hospitality from 1 November 2020 to 31 August 2023 was €1.2 billion. This represented a very substantial support by the Government to those sectors. The cost of a further VAT reduction to 9% for a full year is estimated to be €764 million. Even when the measure is restricted to food and catering services, the cost is €545 million. In making any decision on VAT rates or other taxation measures, the Government must balance the cost of the measures in question against their impact in the overall budgetary framework.

Finally, the Deputy should note that any decision about VAT rates for this area is a matter for consideration as part of the budget 2025 process.

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