Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael) | Oireachtas source

I thank the Senator for raising this important issue. She is correct that the hospitality sector has suffered this double whammy from the impact of Covid and the energy crisis. She is also right to identify that the Government has tried to support businesses through both of these periods.

As the Senator is aware, the 9% rate of VAT applies on a temporary basis to the hospitality and tourism sectors, until 20 February every 2023. This 9% rate of VAT was reintroduced, having been in place for a time in the last decade, on 1 November 2020 in recognition that the tourism and hospitality sectors were among those most impacted, as the Senator said, by the public health restrictions put in place throughout the pandemic. Through no fault of their own, bars, hotels and restaurants had to close and reopen on multiple occasions in response to the public health crisis.

It is important to remember that even temporary VAT reductions involve a cost to the Exchequer in the context of tax revenues foregone. The estimated cost of the VAT rate reduction to 9% when it was first introduced from 1 November 2020 to 31 December 2021, a 13-month period, was €401 million. This rate was then extended to 31 August 2022 at a cost of an additional €251 million. A further extension to the rate was announced in budget 2023, bringing the total anticipated cost of this VAT rate reduction to more than €900 million by the end of February. This represents the provision of substantial support by the Government to the hospitality and tourism-related sector of close to €1 billion euro in a relatively short time. The estimated cost for extending the current measure to the end of this year is €460 million. This can be broken down into estimated figures of €358 million for the hospitality sector and €102 million for the accommodation sector.

I note that it is possible to change the VAT rate for either the hospitality or accommodation sectors without reference to the other. It is important to be aware, however, that if only the accommodation sector, for example, reverted to the 13.5% VAT rate this higher rate would have to apply to all accommodation, including bed and breakfast establishments and small hotels. This is because of the EU principle of fiscal neutrality. Member states are required to apply the same VAT rate to the same service and this principle is also the reason it is not possible to provide separate VAT rates based on geography. There are also practical, operational concerns in having different VAT rates applying to hotel accommodation and meals, given how the sector operates, with various packages possible, ranging from bed and breakfast accommodation on its own through to dining and accommodation plus dining.The complexity of it is quite real. As Senator Byrne and all Senators will be aware, this temporary 9% VAT reduction also applies to other sectors of tourist activity, as well as hairdressing. If the VAT reduction was extended in full to the end of the year, it would cost just over €500 million, with €460 million for tourism and hospitality, and €40 million for other sectors. However, in the coming weeks the Government will examine the full suite of taxation and other measures due to expire at the end of February, as the Senator identified. It is important to note that no decision has been made on whether the measures currently in place will be allowed to expire or whether new measures will be introduced. It is therefore premature for me today, at the end of January, to comment on that further except to say that the range of supports available to businesses is under consideration in a deep way. The decisions that must be made relate to the nature of supports, prospects of inflation, development in public finances, effectiveness of current measures and how that can be fully evaluated.

Senator Maria Byrne highlighted the significant cost of energy, which is important to reference. It is a huge pressure for businesses, especially those in the hospitality sector. Of course, Senator Maria Byrne is aware of the temporary business energy support scheme, TBESS, which is aimed at businesses with an average unit gas or electricity price that has gone up by over 50%. I may come back to that in closing remarks; I have more data for the Senator.