Dáil debates
Tuesday, 23 January 2024
Saincheisteanna Tráthúla - Topical Issue Debate
Tax Code
11:05 pm
Christopher O'Sullivan (Cork South West, Fianna Fail)
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I thank the Minister of State, Deputy Chambers, for taking this really important Topical Issue matter. The next few weeks and months are crunch time for Ireland's hospitality sector. I do not think there is any doubt about this. We have some very important decisions to make as a Government. We can make decisions that will allow Ireland's hospitality sector to flourish or we can make decisions that will see a continuation of the trends that have seen the closure of hospitality businesses such as cafes and restaurants and the whole sector struggling.
For me, the decision we have to make is very clear. The VAT rate now for hospitality businesses is 13.5%. We need to split that VAT within the sector. Let the accommodation continue at 13.5%. It is okay and can cope with this level. For those food-led businesses and the food-led industry, though, we have to reduce the VAT rate back to where it was before the budget, at 9%. When I talk about food-led businesses, I am talking about cafes and restaurants and those small, family-run hotels that deal almost primarily in food in some instances. I refer as well to the gastropubs. These are the businesses that are the heart of our towns and villages. These are the cafes and restaurants that create the buzz and vibrancy on our main streets. They are run by our friends, neighbours and by family members. If we see this sector struggle and go down the Swanee, then it will be our towns and villages and our communities that will struggle. This is an important point to make.
The thing about this is that many of these businesses are not struggling to fill tables, to fill seats or to get customers in through the door. They are vibrant, have a good product and are serving up really good food, but they cannot make ends meet and cannot make profits. A Government cannot control everything. There is very little we can do, for example, about the cost of ingredients. I refer to the cost of carrots, onions or of a tub of mayonnaise, these important ingredients that this sector uses. There is very little we can do about the escalating cost of energy, for example. There are, however, things we can help with, such as rates. The big lever we can pull, though, is the VAT rate and to reduce it to 9%. This is the single biggest intervention we can make to ensure this sector remains viable and alive.
Some 67% of jobs in rural Ireland are supported by hospitality. That is staggering. It is the biggest indigenous employer. We cannot stand by and see this incredibly important sector, that we are all so passionate about, eroded.
I speak to business owners every day. They are anxious. Many have sleepless nights. I am talking about some of the most successful businesses in my region but the owners are losing sleep because of this issue. We have to intervene and reduce the VAT rate for food-led businesses back to 9% to just give them a chance.
11:15 pm
Jack Chambers (Dublin West, Fianna Fail)
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I thank the Deputy. I know how important this issue is generally and in his constituency. I am taking this debate on behalf of the Minister, Deputy Michael McGrath.
At the outset, the Deputy should note that the VAT rating of goods and services is subject to the requirements of EU VAT law, with which Irish VAT law must comply. In general, the EU VAT directive provides that all goods and services are liable to VAT at the standard rate, which is 23% in Ireland, unless they fall within categories of goods and services specified in Annex III of the VAT directive, in respect of which member states may apply a lower rate of VAT. Tourism and hospitality fall within Annex III, thus explaining why they have been subject to these lower rates for a considerable period. The lower VAT rates that apply in this country are 13.5% and 9%.
As the Deputy will be aware, the 9% VAT rate 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. Through no fault of their own, bars, hotels and restaurants had to close on multiple occasions in response to the public health crisis.
The economic rationale for a VAT rate reduction at that time, as it was in 2011 when the rate was also reduced to 9%, was to lower consumer prices, thereby encouraging higher demand, more output and an increase in employment. However, it is important to remember that even temporary VAT reductions have a cost to the Exchequer. The estimated cost of the 9% rate for tourism and hospitality from 1 November 2020 to 31 August 2023 was €1.2 billion. This represented a very substantial support from the Government to the hospitality and tourism-related sectors.
As the 9% VAT reduction was considered temporary in nature from the outset, the Department of Finance carried out an economic assessment of it in 2023 to see if there was a case for its continuing application. This assessment considered the macroeconomic backdrop to any extension of the 9% rate, noting that the economy had rebounded strongly from the pandemic and that economic activity was above pre-pandemic levels. The briefing also noted that the reduced rate was both regressive and costly and that this cost represented a transfer from taxpayers to the sector. The Government accepted this economic assessment but, instead of ceasing the 9% rate on 1 March of last year, extended it to 31 August 2023 at an estimated cost of €300 million to strike what it considered an appropriate balance between the cost to public finances and the provision of support for these sectors.
I note the Deputy is specifically seeking that the reduction in the 9% VAT rate would only apply to food items in the hospitality sector. In this regard, Revenue has previously advised that such a separation from accommodation for VAT purposes is possible. However, it has also indicated that there are 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.
In addition, a significant concern the Minister for Finance has with this proposal is that the cost from an Exchequer perspective would still be very significant. Food makes up a far greater proportion of overall tourism and hospitality VAT revenue than accommodation. For instance, were the 9% rate to be applied to food for 2024, the estimated cost would be €570 million. Consequently, the Minister for Finance is not in a position to apply a 9% VAT rate to food items in the hospitality sector.
Christopher O'Sullivan (Cork South West, Fianna Fail)
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I am obviously utterly disappointed at the response and at the refusal to even examine this proposal further. There is mention of a cost of €570 million to the Exchequer. That is obviously not be ignored. We cannot pretend it is a small figure. It is a lot; it is €570 million. However, the cost to our communities, to society and to our tourism regions of losing cafes, restaurants and gastropubs on the main streets of our towns and villages is far greater. We know the economy is doing well and that we are at almost zero unemployment but there are other aspects to the economy in different regions that we cannot ignore. While there is a cost of €570 million, I will say again that 67% of jobs in rural Ireland are supported by the hospitality sector. It is the single biggest indigenous employer. I do not see that anywhere in the report or the assessment. I want to see a proper assessment of what this would mean to hospitality businesses, cafes, restaurants, gastropubs and hotels. That is what I want to see rather than a simple figure.
Back in March 2023, I flagged with the Taoiseach that there was a tidal wave coming down the line for the hospitality sector. We cannot help with some of the costs. Auto-enrolment and the increase in the minimum wage had to happen and we are not going to row back on them. There is no way we are going to row back on increased sick leave. The one thing we can fix is the VAT rate. I want to see it examined again. I am not going to give up in my quest to have this sorted. The administrative issues Revenue talks about are a load of baloney. This can happen. It happens in other countries. A rate of 13.5% on hospitality is far greater than the European average. This has to be revisited. I am not accepting the "No" I am getting as an answer today.
Jack Chambers (Dublin West, Fianna Fail)
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I appreciate Deputy O'Sullivan raising this issue and his contributions today. We all know the real importance of the hospitality sector, which is, as the Deputy has stated, a very significant employer across the country, in our cities and towns, as well as in many rural communities. It is a sector where job opportunities exist, ranging from part-time to full-time roles. I am also conscious that it can be a challenging sector to operate within.
The Government obviously wants to maintain a healthy and profitable environment for the sector but, in making any decision on VAT or other taxation measures, the Government must balance the cost of the measures in question with their impact on the overall budgetary framework. I will refer to an initiative of the Minister for Finance, Deputy McGrath. On 17 January, he announced that he has been engaging with the Revenue Commissioners on the development of a proposal to introduce further flexibility to the tax debt warehousing scheme. Further information will be outlined soon but it is the Minister's intention to introduce enhanced flexibility to support viable businesses. To this end, he advised that the Government was looking at issues around repayment arrangements and the interest rate that will apply. Revenue has indicated that it will be flexible as regards payment plans for warehoused debt and will work with businesses in the scheme so that they can secure their viability into the future.
As I have already indicated, the cost of applying the 9% rate to food items in the hospitality sector would amount to €570 million in a full year and €470 million from 1 March of this year to the end of the year. Such a decision would have significant consequences, as it would provide support for some businesses and not others while further limiting the Government's options in the future by reducing the overall budget available for other measures. I will reflect the Deputy's contribution on this Topical Issue to the Minister, Deputy McGrath.
Catherine Connolly (Galway West, Independent)
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Táimid ag bogadh ar aghaidh go dtí an dara ceist, atá in ainm an Teachta Matt Carthy, who seeks to discuss services for children with disabilities in Cavan and Monaghan.
Jack Chambers (Dublin West, Fianna Fail)
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I am sorry. The Minister of State, Deputy Rabbitte, is coming. Would the Deputy like to wait?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Is Deputy Chambers taking the third Topical Issue?
Jack Chambers (Dublin West, Fianna Fail)
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Yes, but Deputy Rabbitte is coming.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I am happy to swap.