Emer Higgins (Dublin Mid West, Fine Gael) | Oireachtas source

I move amendment No. 1:

To delete all the words after "Dáil Éireann" and substitute the following:

"notes that:

— the Government is very conscious of the needs of the tourist and hospitality sector and wants to maintain a healthy and profitable environment for these sectors going forward;

— in this regard, it reduced on a temporary basis the Value Added Tax (VAT) rate from 13.5 per cent to 9 per cent on 1st November, 2020, in recognition of the fact that the sector was amongst the most impacted by the public health restrictions put in place throughout the pandemic;

— the cost of this VAT measure for the period from 1st November, 2020, to 31st August, 2023, was over €1.3 billion, and this represented a very substantial support by the Government to the hospitality and tourism related sectors;

— the cost of a further temporary VAT reduction to 9 per cent for a full year is estimated to be €868 million, and even where the measure is restricted to food and catering services, the estimated full year cost is €675 million; and

— Ireland is not significantly out of line with other countries in relation to the application of VAT in this sector, for instance, it is noteworthy that 14 European Union (EU) countries have a VAT rate of 12 per cent or higher on food services, and our nearest neighbour, Great Britain and Northern Ireland, has a VAT rate of 20 per cent on food services;

recalls that:

— the hospitality sector benefits when consumers have greater disposable income, so Government measures to address cost-of-living issues benefit business through increased household income;

— the Government has made substantial fiscal support available to assist with the cost-of-living challenges that arose after the global increase in energy prices;

— changes were made to the tax Debt Warehousing Scheme earlier this year, including a reduction in the interest rate on warehoused debt to zero per cent, which provided critical support to businesses in the hospitality sector (amongst other sectors) at a very difficult time;

— during the summer, the Government agreed a range of measures to assist businesses in adjusting to increased costs and to improve the cost competitiveness of firms more generally, and these measures included: — increasing the employer Pay Related Social Insurance (PRSI) threshold from €441 to €496 with effect from 1st October, 2024, and this ensured that employers with employees earning the weekly equivalent of the National Minimum Wage will pay the lower employer PRSI rate of 8.8 per cent;

— launching a second phase of the Increased Cost of Business (ICOB) scheme, targeted at businesses in the retail and hospitality sectors, and this scheme has now paid out over €243 million to almost 75,000 small- and medium-sized enterprises (SMEs) right across the country over the past six months;

— doubling the Circular Economy Innovation Grant Scheme 2024 (CEIGS) from €5,000 to €10,000; and

— increasing the maximum amount available under the Energy Efficiency Grant scheme to €10,000, and reducing the business contribution rate from 50 per cent to 25 per cent; — the personal income tax package in Budget 2025 was designed to support low and middle income earners, building on the progress already made during this Government's term, specifically in relation to increases to tax credits and Universal Social Charge (USC) reductions;

— the personal income tax package of €1.6 billion included: — increasing the main tax credits, the Personal, Employee and Earned Income Credits, by €125; and

— increasing the Standard Rate Cut Off Point by €2,000 to €44,000, with proportionate increases for married couples and civil partners; — reducing the 4 per cent rate of USC to 3 per cent; and

— the Government, in Budget 2025, agreed a range of measures to assist businesses in adjusting to increased costs and to improve the cost competitiveness of firms more generally, and these measures include: — the Power Up Grant, which provides businesses that received the second ICOB payment and that now meet the eligibility criteria for a grant in 2024, an energy grant of €4,000; and

— Budget 2025 will also increase VAT registration thresholds from 1st January, to €42,500 for services and €85,000 for goods, and this will help small businesses recently drawn into the VAT net by current levels of inflation; and recognises that:

— this approach to the cost-of-living challenge balances the need to provide the necessary fiscal support to households and firms while, at the same time, maintaining our public finances on a sustainable trajectory over the medium-term and avoiding a situation whereby the Government's fiscal response becomes part of the inflation problem;

— the policy response has been focused on measures that are temporary, timely and targeted at those most in need;

— the Government's measures to date are having the desired impact since: — inflationary pressures have eased considerably over the last year and the domestic economy has grown at a robust pace, and the easing in inflationary pressure will boost real disposable income and enable the pace of consumer spending growth to pick up as the year progresses; and

— Ireland continues to experience record high levels of employment with almost three quarters of our working-age population now in employment and with participation amongst female workers at its highest level ever; and — the cumulative impact of personal income tax changes over the lifetime of this Government has seen: — the main tax credits increased by 21 per cent or €350 each from €1,650 to €2,000;

— the Standard Rate Cut Off Point for single person increased by 25 per cent or €8,700, going from €35,300 to €44,000, with commensurate increases for persons who are married or in a civil partnership;

— the USC middle rate reduced by 1.5 percentage points from 4.5 per cent to 3 per cent; and

— the 2 per cent USC ceiling band increased by 34 per cent or €6,898, going from €20,484 to €27,382.".

I welcome the opportunity to discuss this Private Members’ motion to apply a 9% VAT rate to the hospitality food sector. At the outset, I wish to say that the Government is acutely conscious of the pressures facing small and medium enterprises, particularly in the hospitality and tourism sectors. My own Department, the Department of Enterprise, Trade and Employment, in collaboration with the Department of Social Protection, carried out a study on the increase in the cost of doing business and the hospitality and tourism sectors were absolutely to the fore on that. We drew up a heat map and they were the ones that were red. The reason for those pressures has been in part due to the energy price inflation and the broader cost-of-living crisis since the end of the pandemic which has led to a challenging environment for these sectors across the country. Indeed, Government policy decisions have also increased the cost of doing business. Those decisions were taken in light of the need to increase workers' rights.

The challenges have been reinforced in meetings with the hospitality food sector where it has been really clear that businesses are doing well from a turnover perspective but that costs remain stubbornly high. I have met with so many businesses who say my turnover is up, my covers are up but my margins are down and that is because of the increase in the cost of doing businesses.

In this context, the Minister for Finance, Deputy Chambers, believes that while undoubtedly a lower rate of VAT may assist hospitality businesses from a cash flow perspective in the short term, it is his view that it will be of little assistance in the longer term as it would not address the fundamental issues of business costs. While this decision around VAT is a matter for the Minister for Finance, in my capacity as a Minister of State in the Department of Enterprise, Trade and Employment, I want to ensure that Government is working to create a better economic environment for businesses and in particular, for the hospitality sector.

The Government and I recognise the importance of the tourism and hospitality sector not just for the economy or the tens of thousands of people they employ, but also for the role that many of these businesses play in our communities. For many people, myself included, the sector provided them with their first job and their first start in work when they were starting out by providing them with a job that gave them the ability to work flexibly or part time and for so many people, it offers a full career filled with opportunities. The personal nature of the business and the way it impacts on all of our lives means that all of us in government are aware of the challenges the tourism and hospitality sectors have faced over the last number of years.

Small and medium-sized enterprises have experienced a number of economic shocks in recent years, which have resulted in cost increases. The pandemic and the quicker-than-expected bounce back in global economic activity strained global supply chains. The Russian war in Ukraine significantly impacted energy costs, which have escalated for both businesses and consumers. While wholesale energy prices are improving, prices remain elevated compared with historical averages. It is important to remember these shocks have been global in nature.

As I alluded to earlier, it is acknowledged that there have also been increased costs associated with domestic measures, which includes the increase in minimum wage, changes to statutory sick pay and the introduction of the additional bank holiday, all of which were brought forward from a workers' rights perspective. The various changes were signalled in advance and were typically subject to consultation. Ultimately, however, it is clear there is a cost of this, which is being borne by businesses and the sector. That is why it is so important that we have the SME test now at the heart of Government and the heart of Cabinet to make sure every policy decision, every item of legislation and every statutory instrument from every single Department is stress-tested from an SME perspective and any changes are well flagged in advance with those who will be impacted. The implementation of the living wage is assessed to have the most significant impact on costs, with those operating in the hospitality and retail sectors expected to experience a comparatively sharper increase in costs compared with others. Those two sectors account for almost two out of every three workers on the national minimum wage.

When the Government introduced the 9% VAT rate for tourism and hospitality, a measure we brought in back in November 2020, it was a time when public health measures routinely closed hotels and restaurants or significantly limited their capacity and put their business at risk. The temporary change to the VAT rate was only one part of the Government’s response and other business supports, such as the wage subsidy schemes, were critical for many businesses to survive that uncertain time. Reflecting the large-scale Government support for households and firms, the economy has weathered this price shock relatively well. Economic activity is now back above its pre-pandemic levels and is broadly consistent with levels that would have existed had there been no pandemic.

The most recent analysis carried out by the Department of Finance noted that despite facing numerous successive headwinds over recent years, the domestic economy has proven to be remarkably resilient. Looking ahead, as inflation eases and with the tax reductions that were announced in the budget coming into play in January, the real disposable income of households will continue to recover and support consumer spending. Putting households on a stronger financial footing will support demand for services, cafes, restaurants and hotels right across the tourism and hospitality sectors. The Minister, Deputy Chambers, informs me the most recent estimated cost of the 9% VAT rate for tourism and hospitality, from 1 November 2020 to 31 August 2023, was over €1.3 billion. This represented a very substantial support by the Government to the hospitality and tourism related sectors. The cost of a further temporary VAT reduction to 9% for a full year is estimated to be €868 million. Even if the measure is restricted to food and catering services, that cost would be €675 million.

The reality is, and we have heard this from the hospitality sector that were there to be a VAT reduction, it may not be passed on to consumers. If that was the case, it would constitute an enormous fiscal transfer of taxpayers' money, which is the Minister for Finance's position on this issue. The Minister, Deputy Chambers, also wishes to put on record that the VAT rate for the hospitality sector in Ireland compares favourably to the rate in Britain and Northern Ireland, where there is a 20% rate.

One of the suggestions that has been made by many people is to apply different VAT rates for the hospitality and food sectors when compared to the VAT rate for accommodation. While this is possible, the same VAT rate must be applied within the same sector. If the VAT rate was changed and reduced for hospitality but the accommodation rate continued at 13.5%, this change would have to apply to all accommodation, including bed and breakfast accommodation and small hotels, because of the principle of fiscal neutrality which requires universal application. Revenue has advised that there would be significant practical operational concerns associated with that and it believes it would give rise to administrative and operational complexity.

In addition, a significant concern with this proposal is the cost from an Exchequer perspective would still be very significant. Food makes up a far greater proportion of the overall tourism and hospitality VAT revenue than accommodation, with an estimated annual cost of €675 million from applying a reduced VAT rate to food alone. The Government has provided significant supports to businesses over the last number of years and I welcome that both Deputies have alluded to some of the supports that were there. The increased cost of business, ICOB, grant, which has provided financial support to small and medium businesses that operate from a rateable premises, has been really welcomed by SMEs across the countries. A total of €243.5 million has been paid out under the scheme to almost 75,000 SMEs, including over 39,000 SMEs in the retail and hospitality sector. Businesses in the retail and hospitality sectors were entitled to a second payment for approved businesses or a double payment for new registrations. Deputy Pringle spoke about businesses that were behind on rates and excluded from this scheme. If there is a business in the Deputy's community in that situation, once they have a payment plan in place at all with their local authority, they will qualify for that support.

Under the new power up grant, announced in budget 2025, those businesses that received the second ICOB payment, and those that now meet the eligibility criteria for a grant in 2024 - new businesses to the scheme that were not rateable last year but are this year - are in line to receive an energy grant of €4,000 straight to them between now and Christmas. There was €170 million announced in the budget for this grant and details on the application process will be announced shortly. Broader supports for SMEs were announced in the budget, including the extension of the 9% VAT on gas and electricity from the end of October to the end of April next year. In addition, the VAT registration thresholds have been increased from €40,000 for services and €80,000 for goods. This will help small businesses recently drawn into the VAT net by current levels of inflation.

The tax debt warehousing scheme, which I know the Deputy spoke about, has also offered valuable and practical liquidity support to businesses since the Covid-19 pandemic and supported their cash flow during difficult trading periods.

The small benefit exemption limit has been increased from €1,000 to €1,500. This is to allow employers to reward their staff in a much easier and less cumbersome way by allowing them to draw down up to five non-cash benefits in a single year. In addition, the self-employed earned income credit will allow business owners to keep more of their hard-earned money. Having listened to the sector, we have made changes to the capital gains tax, CGT, retirement relief to facilitate family business owners to pass on their operations to the next generation without any financial penalty. The national training fund will be utilised to help to upskill staff, with €8 million targeted at smaller businesses. Automatic enrolment, as noted, has been deferred until October to give businesses time to better prepare for it.

Furthermore, the Government recently announced a €2.2 billion cost-of-living package, which is targeted to provide additional income to households as economic conditions improve. This will benefit consumer confidence and increase disposable income. It is expected that this package, along with continuing falling inflation, will see an increase in consumer confidence going into the busy Christmas period and will, in turn, lead to greater spending.

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