Pearse Doherty (Donegal, Sinn Fein)
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64. To ask the Minister for Finance his views on extending the reduced 9% rate of VAT for the hospitality and tourism sector; its estimated cost, including and excluding hotel accommodation; and if he will make a statement on the matter. [3329/23]

Pearse Doherty (Donegal, Sinn Fein)
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The reduced VAT rate for the hospitality and tourism sectors is due to end at the end of February. As we know, these sectors face a number of headwinds this year, including the economic downturn, reduced disposable income and higher travel costs; together with a number of tailwinds, including pent-up demand to travel as a result of the Covid restrictions being eased, risk subsiding and the reopening of the market. Taking these factors together, can the Minister outline his views on extending the reduced VAT for the hospitality and tourism sectors beyond February of this year?

Michael McGrath (Cork South Central, Fianna Fail)
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As the Deputy is aware, at present the 9% rate applies on a temporary basis to the hospitality and tourism sectors until the end of February. The 9% rate was introduced 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. Through no fault of their own, bars, hotels and restaurants among others had to close on multiple occasions in response to the public health crisis. The measure initially ran from 1 November 2020 to 31 December 2021 at a cost of €401 million. It was then extended to 31 August 2022 at a cost of an additional €251 million, and a further extension was announced in budget 2023, bringing the total cost to over €900 million to the end of February 2023. This represents very substantial support by the Government to the hospitality and tourism-related sector.

As set out in budget 2023, from 1 March 2023 these sectors are due to return to the 13.5% rate. The budgetary position for 2023 is constructed on this basis. The estimated cost for extending the current measure to the end of the year is €427 million. This can be broken down into estimated figures of €326 million for hospitality and €101 million for accommodation. As I have said on a number of occasions, the Government will, in the coming weeks, examine the full suite of taxation and other measures that are due to expire at the end of February. In making any decision, the Government will balance the costs of the measures in question against their impact and the overall budgetary framework. It should be noted that other supports have been put in place which are also of assistance to the sector, including the new temporary business energy support scheme. This scheme is aimed at businesses whose average unit gas or electricity price has risen by over 50% compared with their average unit gas or electricity price in 2021.

Pearse Doherty (Donegal, Sinn Fein)
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Although it is noted on the Register of Members' Interests, I wish to declare that I am a director of a music festival that benefited from the 9% VAT rate. It is a not-for-profit organisation. The reduced rate of VAT was introduced in November 2020 during the pandemic more to support the cash margins of struggling businesses than to incentivise a reduction in prices. The total cost of the measure to the end of February will be €902 million. Has the Department undertaken analysis of the economic impact in 2023 if the rate reverts back to 13.5%? It is important that if such an increase happens, we are absolutely assured that the benefits outweigh the costs to the taxpayer, the sectors concerned and employment. There are reports of price-gouging in the hotel sector, particularly in Dublin.

That also needs to be weighed against excluding the accommodation sector because obviously Dublin is not Donegal, Kerry or Galway. There are differences in different regions.

Michael McGrath (Cork South Central, Fianna Fail)
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To answer the Deputy's question directly, I have asked my Department to carry out an assessment of all the measures that are currently due in law to expire at the end of February. I will shortly meet my officials to go through that and consider their assessment of all those measures, the economic impact, the current economic circumstances and so on.

The key issue for me is to make sure we make the best use of taxpayers' money, which is limited by its very nature. We hear every day in this House more and more calls for additional expenditure, in some cases for tax reductions or tax supports in different areas. We must make difficult decisions. This is one of a number of measures that are due to expire. It was introduced as a Covid-19 measure to support the sector in very difficult times. We are now in a situation where the labour market is very strong. In fact, there are labour shortages across a whole range of sectors. We will do a full analysis and make a considered decision taking into account all of the factors.

Pearse Doherty (Donegal, Sinn Fein)
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I will be interested to see if that economic analysis and impact assessment on whether this rate will go back up will be published before a decision is taken. The Taoiseach remarked this month that it would be possible to extend the reduction while excluding hotels. Is that on the cards? Is there potential for that? It would also have to exclude all holiday accommodation such as bed and breakfast accommodation, guest houses and campsites. Does the Minister believe that is fair, particularly given the impact it would have on more rural and less lucrative markets? Is this option under consideration?

As I said, there are swings and roundabouts with regard to this. The cost-of-living crisis is dampening demand and higher energy costs are impacting on the sector. We also have staffing issues and so forth. There are, however, other positives in terms of restrictions being lifted. Can I get an understanding from the Minister regarding the cost or economic impact assessment for 2023, which he said is under way? Will such an assessment be published by the Department? Will he answer the question about the exclusion of hotel accommodation?

Michael McGrath (Cork South Central, Fianna Fail)
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As the Deputy knows, the costing that has been put on the overall measure being extended to the end of the year is €427 million, which is a very large sum of money by any yardstick. The Deputy asked verbally and in writing about excluding hotel accommodation. I am advised by Revenue, as I set out last week in written replies to parliamentary questions, that there would be significant practical operational concerns in having different VAT rates applying to hotel accommodation and meals given how the sector operates, with various packages ranging from bed and breakfast accommodation through to all-inclusive board and lodging packages. This could lead to the underpayment of VAT because the charge for accommodation and meals would have to be apportioned. In the view of Revenue, it would undoubtedly provide opportunities for tax planning, which would be difficult to police. This would give rise to administrative and operational complexity as well as increased risk of avoidance and scope for manipulation of the VAT system. This is the view of Revenue and those are the points it made to me. I must also take account of those points when we are making a decision.