Pearse Doherty (Donegal, Sinn Fein)
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74. To ask the Minister for Finance if he will publish the economic analysis undertaken by his Department regarding the retention of the 9% rate of VAT with respect to the hospitality and tourism sectors; if he will outline its findings; and if he will make a statement on the matter. [11320/23]

Pearse Doherty (Donegal, Sinn Fein)
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This comes back to the question that was addressed earlier by Deputies Rose Conway-Walsh and Alan Dillon in regard to the 9% VAT rate. I raised this issue with the Minister on 24 January last. During that discussion, I asked if the Department had undertaken an economic impact assessment regarding the consequences should the rate reduction be extended or the prior rate be reinstated. The Minister told me that analysis was being carried out. Will he commit to publishing that analysis?

Michael McGrath (Cork South Central, Fianna Fail)
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In January of this year, officials from my Department compiled a ministerial briefing on a number of measures, including the temporary 9% VAT rate. This briefing included an economic assessment of the measure. The material outlined the macroeconomic backdrop to any extension of the 9% rate, noting that the economy has rebounded strongly from the pandemic and that economic activity is now above pre-pandemic levels. The briefing also contained an analysis of employment trends, reporting that employment in the sectors covered by the 9% rate was near pre-pandemic levels last year. While job vacancies in the 9% sectors were lower than the economy overall, they are still higher than the long-term average. Economy-wide employment could be classified as what economists term “full employment”. In addition, the briefing noted that the reduced rate is both regressive and very costly, and that this cost represents a transfer from taxpayers to the sectors which it covers.

The Government accepted the Department’s economic assessment, which found there was no longer an economic case for the temporary 9% rate and, therefore, decided upon a reversion to the 13.5% VAT rate. Specifically, the Government decided that the 9% VAT rate for the tourism and hospitality sectors will only apply until 31 August. This decision was made in recognition of the employment provided in the sectors to which the 9% rate applies, as well as to give businesses a transition period to adapt to the changing economic and policy environment. Finally, the Government was cognisant of avoiding adding to upward pressure on prices while inflation remains so elevated.

This extension, therefore, strikes a balance between the estimated €300 million cost to the public finances and the provision of support for these sectors through the busy summer period, after which the reduced rate will cease. I have already put on record, both tonight and in written parliamentary question replies, a summary of the economic assessment. I will discuss with my officials the issue of publishing it. I have no objection to the publication of the assessment and I have already provided a high-level summary of it.

Pearse Doherty (Donegal, Sinn Fein)
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I have received the parliamentary question responses in regard to the assessment. That is very important because there has been a wide public debate in this regard. It is a good debate and it needs to be an informed debate, including in regard to the Department's analysis on whether to extend or continue with the rate.

Whether 9% is the appropriate rate for the sector is another question that should be teased out and the cost implications of that need to be taken on board. Consequently, the publication of the assessment is important. I have done this on many occasions, but I make clear that as a director and founder of a company that is not for profit, that company will benefit from the reduced rate of VAT as it operates music festivals. I wanted to put that on record.

The Minister made the point in his commentary that the Department believes it is regressive and I believe the Minister agrees. That being the case, will he give the reasons for the continuation of the 9% rate in the first instance? The Taoiseach was flying kites for a long time about hotels being excluded and all that. The Minister and I know, and Revenue would tell anyone, that it cannot be done on a practical level. However, is that completely off the cards?

Michael McGrath (Cork South Central, Fianna Fail)
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It is important to give certainty to the sector. It is appropriate we have a transition to the restoration of the rate on 1 September. There was considerable debate and speculation and it would have been challenging for many businesses that are dealing with increased energy and other costs and grappling with remaining competitive and keeping their doors open. I was very conscious of that. I was conscious also that putting it up would have resulted in some prices going up. VAT is a consumer tax. It is the last item that goes on the bill or invoice, so it is a tax on consumers. We are trying to get inflation down and it is a sector that is jobs-rich throughout the country. Taking all that into account I felt, and the Government felt on my recommendation, that a six-month transition to the restoration of the 13.5% rate was the appropriate action. I have no doubt the debate will continue but as I said earlier it is important I, as Minister, provide clarity and certainty to the sector that the rate will return to 13.5% on 1 September.

Pearse Doherty (Donegal, Sinn Fein)
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To clarify, will that occur regardless of the rate of inflation at that point in time? When the Minister selects 1 September for a tax rate to go up it is an appropriate time because the Dáil is in recess. The Dáil is in recess for a number of weeks before and after that date as well and that sometimes creates a little bit of pressure. Is the Minister saying the decision is permanent regardless of the inflationary environment? The last time it was restored it was also said that was permanent. I assume the Department did not support the extension, and that is fine. There must be political considerations and I agree a Minister should weigh up the advice and then make decisions, so I am not questioning that. However, the sector has put forward a strong argument that if we look at our competitors in Europe, outside Britain, our 13.5% rate probably makes us an outlier. What is the Minister's opinion on that debate? Some would argue it is not about an extension and that the right rate for the sector is 9%. I am not convinced at present, but I would like to hear the Department's view and the Minister's own on whether there is any merit to that argument, given countries other than Britain have rates well below 13.5%.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Deputy for acknowledging there is a role for political judgment in all these decisions. As he well knows, given the way the public finances were managed, in the base it was provided that the underlying rate here is 13.5%. Accordingly, there is a cost to the Exchequer in the form of providing additional resources by way of revenue foregone were we to continue with the 9% rate over a longer period. That is why I have acknowledged there is a cost of €300 million associated with the extension to the end of August. We will have a Finance Bill in the coming weeks, so the mechanics of it will be the subject of a discussion through the normal legislative process. However, it is my intention and the Government decision that the rate will return to 13.5% on 1 September.