Joe O'Reilly (Fine Gael)
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It is my pleasure to welcome the Minister for Finance, Deputy Donohoe, to the House. He is one our well-known alumni at this stage.

Paschal Donohoe (Dublin Central, Fine Gael)
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I wish to thank Senators for raising this matter for discussion and I welcome the opportunity to speak to Members about the supports in place for our very valued tourism and hospitality sector.

At the outset, I wish to put on record the importance the Government and I place on the tourism and hospitality sector, and particularly its contribution to the Irish economy. It is not just the businesses that operate or the tax revenue that is raised. It is the tens of thousands of people - more than 160,000 of our fellow citizens according to the latest CSO figures - working in the sector, in every city, every town and every county.

Having had the great privilege of serving as a Minister for Transport, Tourism and Sport, I saw at first hand the benefit for our economy, for our society and for our culture, of a successful tourism and hospitality sector, and of the excellence of those who work in it and how hard they work.

As Senators will recall, in budget 2021 the Government brought down the VAT rate for the hospitality and tourism sectors from 13.5% to 9% as part of its response to Covid-19. When the measure was introduced it was planned to last 14 months, from 1 November 2020 to 31 December 2021. This was extended to 31 August 2022 and was then further extended to 28 February 2023. This is a measure that has already been extended twice. As is clear from my Budget Statement, it is not proposed to extend it beyond this date.

These extensions were made 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. It will take some time for me to forget the two Christmases in a row when we had to ask the hospitality sector to either close down or significantly change how they were working on days of notice. The most recent and final extension of the measure will provide further support over the busy November and December period and early into the new year.

It is important to remember that all of these VAT reductions have a cost. The estimated cost of the measure when it was first introduced, from 1 November 2020 to 31 December 2021, was €401 million. The estimated cost of the extension to 31 August 2022 was €251 million. The estimated cost of the final extension is €250 million. The overall cost of this measure from 1 November 2020 to 28 February 2023 is €902 million. Clearly, this is a very significant sum.

The debate about this issue should recognise that the reduced VAT rate has only ever been one part of the support package that the Government has provided for the sector. As Senators are aware, over the course of the pandemic this Government introduced a broad range of Covid-19 supports for businesses such as the employment wage subsidy scheme, EWSS, and its predecessor, the temporary wage subsidy scheme, TWSS. The objective of both schemes was to support employment and maintain the link between the employer and employee insofar as is possible. These were economy-wide schemes that operated across all sectors of our economy. There is no doubt that the tourism and hospitality sectors benefited from these measures the most, and they needed to, as their businesses were impacted directly and repeatedly by public health restrictions. In money terms, the overall support provided by EWSS and TWSS was in excess of €10 billion. Payments were made to more than 50,000 employers in respect of more than 700,000 employees.

Unfortunately, as we all know, the pandemic has been followed by a global energy crisis. This is not something that the world was expecting or, in many ways, prepared for. Russia’s awful war on Ukraine has sent shockwaves throughout the global economy, most clearly in the energy and commodity markets. Virtually every country is struggling economically as a result. The inflationary pressures from energy have been further compounded by the imbalance between demand and supply that emerged as the economy reopened. As I outlined in my budget speech only a few weeks ago, as a result of these factors, headline inflation in Ireland, similar to other advanced economies, is now running at highs not seen in many decades. That is why the Minister for Public Expenditure and Reform, Deputy McGrath, and I, with the agreement of Government, focused on making budget 2023 a cost-of-living budget. In this regard, as announced in the budget, a temporary business energy support scheme, TBESS, is being established to assist businesses with their energy costs over the winter months. We will have it up and running in a matter of weeks. It will be administered by the Revenue Commissioners and will operate on a self-assessment basis. A monthly cap of €10,000 will apply and an overall cap will apply on the total amount a business can claim. The scheme is being designed to be compliant with the EU state aid temporary crisis framework and will need to be approved by the European Commission in advance of any payments being made. It is a significant intervention by the Government in the Irish economy to protect employment. Indeed, it was the single largest announcement on budget day. If forms a very large part of the overall once-off package. We must weaken the ability of a shock to income becoming a loss of jobs. This new policy will help employers with their rising bills and help to save their businesses. It is an economy-wide scheme. It will support businesses across every sector, including tourism and hospitality. Another significant measure taken by Government, which is currently benefiting many sectors of our economy, including tourism and hospitality, is the VAT reduction for gas and electricity from 13.5% to 9%.

I will make a few concluding points. Any decision that the Government makes on issues such as the further extension of the VAT reduction for hospitality must be balanced against the costs of other measures the Government is taking. That is why I am not proposing to extend this measure, as I believe that other measures such as TBESS, which is not available at the moment, will provide significant assistance to the sector.

As all Members in the House are aware, the Government has a responsibility to be careful with our public finances. I make the case that because of how the public finances were managed before Covid-19 and during Covid-19, we have managed to help at a time when help was needed. We now have a new challenge to which we must respond collectively, namely, the accelerating and rising cost of living. How we have managed our finances to date has allowed us to act swiftly and decisively, while also striking a delicate balance between helping those with cost-of-living pressures and not making them worse by adding fuel to the inflationary fire.

As always, the Government and I will continue to work to ensure that we engage with every sector and do what we can to support sectors in meeting the challenges that face us.I will continue to engage with all parties in the Oireachtas to identify how the Government can serve our people best.

I thank the Seanad again for raising this matter. I have to go to the Dáil for the debate on a particular Bill, but I look forward to hearing from all who will contribute to the debate here. I hope to be in a position to respond at the end.

Joe O'Reilly (Fine Gael)
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I thank the Minister for his impeccable timing and for the comprehensive and forthright response to the statements. I want to intervene before I call the first speaker to welcome Deputy Grealish and his guests to the House. I also welcome the two guests who arrived in the Gallery earlier.

Seán Kyne (Fine Gael)
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I welcome the Minister. I acknowledge the range of supports the Government has provided for the hospitality sector, going back to 2020, as the Minister outlined, but back in 2011 as well, when this VAT rate was first reduced to give a kick-start to the tourism and hospitality sector. This is an area that was identified as being prime for growth, and the incentive we are discussing protected existing jobs, increased employment and helped businesses expand at a time of deep recession in 2011.

The tax base is extremely important. The Minister mentioned that the measure will cost more than €450 million in a single year. That has to be balanced against the impact of allowing the rate to increase again and whether that will have an impact on employment and the viability of businesses. In advance of the budget in 2019, the Minister initiated a review of the 9% VAT rate. This found that tourism expenditure is more sensitive to income growth and the economic cycle than price changes, which reduces the relevance of the VAT rate applying to the sector. The Minister might have an opportunity to expand on that matter.

Hospitality and tourism is present across the board in every county and community. It could be argued that the level of prices and price gouging in certain establishments, including within this city, should be distinguished from other establishments and parts of the country where that has not been evident. At certain times of the year and during certain events when there is high demand, it is clear that there is significant price gouging within our capital city. That is a disincentive to tourism. The Minister might be able to advise on whether it is possible to decouple hospitality from the accommodation side of tourism.

There has been a range of assistance provided to businesses. Energy is one issue that has been much talked about. I welcome the initiatives put in place in the budget, but the concern is that a rise in the VAT rate next year could further reduce the viability of certain businesses in the midst of this crisis. Could the timing of be delayed? There is a cost to that, and I know the Government will be keeping this matter under review. Clearly, the Government decision is that there is to be no change and no further extension. The Government will be acutely aware of and keeping cognisance of the sector and the pressures on it in the coming months.

Paddy Burke (Fine Gael)
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I welcome the Minister. I want to speak about the 9% VAT rate. The tourism and hospitality sector is labour-intensive. It is a seven-day-per-week industry that runs from 7 a.m. until 9 p.m. The proprietors of those premises and the people who run those businesses have several shifts a week to cover for, and it is not easy. In lots of sizable towns, you will see that other than in a filling station you will not get a sandwich after 4 p.m. because a lot of those small restaurants have one shift and they will close for one day in order that they are operating on five days per week. There are major problems for those small businesses.

As Senator Kyne says, if the Minister could decouple the food end of it from the accommodation sector, it would be a great help to those small businesses because they are suffering. I have been in the hospitality business for many years. There are long and unsociable shifts and hours on Saturdays and Sundays and to cover all of those shifts is difficult. That extra 4.5% makes an enormous difference. While it might seem small, at the end of the day, week, month and year it is a sizable amount of money extra that the business has to collect to cover the costs and pay for VAT, wages, PAYE and PRSI. In a lot of cases in small restaurants where they are doing breakfasts the breakfast can cost over €18, which is unsustainable. I ask the Minister to have a look at decoupling of some kind.

Martin Conway (Fine Gael)
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I congratulate the Minister on what was an excellent budget and on being candid and blunt with the Irish Hotels Federation about its members' price gouging when he met its representatives. I would love to know if something can be done, from a legislative perspective, to try to prevent this type of thing happening. I do not know how you could go about it but it is totally unfair to the thousands of people all over the country who are struggling to run businesses.

It was put simply to me by a man who established a new business recently. He will probably have turnover of €2 million to €3 million but that does not mean he will have anything significant in profit. As he said, for each €1 million the difference between 9% and 13.5% is €45,000, which is substantial. As has been stated already, there is a major struggle to try to keep businesses open as a result of staff shortages and so on. Some businesses in Ennis are looking at staying closed on Mondays and Tuesdays because they cannot get staff. The 9% rate going to 13.5% will have an impact on them.

During Covid we looked at changing and altering rules. I understand that VAT is controlled to a large extent by criteria in Brussels but surely we could look at regionalising it so that in areas that are heavily dependent on tourism but do not have the traffic of the capital cities, including winter traffic as well as summer traffic, we could look at retaining the 9%. I know the answer will be "No" but surely we can go back to engage and see if there is a way of doing it. There could be a 13.5% VAT rate in the areas with substantial resources and where price gouging and so on is continuing, but the 9% rate could apply in other areas that need it and that are trying to generate a regional balance of people living and working in our smaller areas such as County Clare, as opposed to the capital, to try to balance out our population. I am asking the Minister to think outside the box and make the case to Brussels to have another look at how we implement the VAT rules.

Sharon Keogan (Independent)
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I thank the Minister for coming in. I know how busy he is. It is always good to have the Minister for Finance here. I always say that governments do not create employment, but that they create the environment for employment. Taking away the 9% VAT rate will not be a good environment for continuing employment.

This Government published the tourism recovery plan for 2020 to 2023 in October 2020. A total of 75% of spending on Irish tourism relies on foreign investors. A total of 100,000 people in accommodation and food services received the pandemic unemployment payment, with more tourism and hotel jobs receiving Government wage subsidies. The Government agreed in May of this year to extend the 9% VAT rate that applies to the tourism and hospitality sectors for a further six months until the end of February 2023, at an additional cost of €250 million.As no further extension to this measure is envisaged, a 13.5% rate will apply to these sectors from 1 March 2023. Mr. Adrian Cummins, CEO of the Restaurants Association of Ireland, said:

The 9% rate must stay in place due to the ongoing cost of living and energy crisis. If the rate of VAT rises to 13.5% it means a 50% increase and will make Ireland the second highest in the EU for this rate. The 9% VAT rate, ending in February of next year, would only increase costs for consumers and raise concerns about Ireland's competitiveness compared to our EU counterparts.

The Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media, Deputy Martin, said she had fought to retain the 9% hospitality rate in the 2023 budget and that the lower rate has been vital to the recovery of the sector's post Covid. In light of the recent forecast from the IMF, we need to keep the recovery up. I would like to talk about the IMF today and ask the Minister to give me some insight into its visit last week because the IMF has said that things are going to get much worse.

Conor Walsh, tax partner at Deloitte, said:

Many businesses operating in this industry are facing steep competition, with inflationary pressures mounting. Where future changes are envisaged, these should be balanced against the likely impact to small and medium sized businesses in the coming years.

As always, multinational companies will be able to absorb the VAT hike and it will be the SMEs working in the sector that will struggle, falter and fail. The estimated cost to the Exchequer of the planned extension is €250 million. I am not sure I even want to know the overall total we have spent across Covid in supporting businesses, households and individuals, but I am sure that this current measure is a drop in the ocean. A VAT hike in the coming year will kill businesses, and instead of the Exchequer getting 9% rather than 13.5%, it will get nothing from sunk hotels and venues, and it will be spending money to fund welfare for these people.

Five hundred hotels in this country, or one in four hotels, are paid for by the Government to provide 30,000 beds for Ukrainians. That is the commitment this Government has made. The VAT rate hike is a slap in the face for hotels and restaurants that are rowing their own boat trying to manage this crisis. Many of these will go to the wall and that is a fact. Employers are now being crippled with PRSI, and the new year will see the introduction of the minimum wage increase, pension auto-enrolment and the introduction of statutory sick pay. With the cost of fuel rising and the other costs of doing business, how will these hotels find extra money to pay the extra 4.5% hike in VAT? How many restaurants and hotels have warehoused their taxes? Do we know that number? If we have not got that figure and some of those people have warehoused their taxes, which is an option that has been extended to May, these owners may as well close their doors after Christmas because they are not going to be able to afford the tax hikes, their rates going up and the warehousing of the taxes and repayments. People are already looking at what nights they are going to be able to go out. They are not going to be able to go out at night during the weekends. They are going out for lunch but they are not going out at night, so daytime trade may survive.

We also need to look at employment. People do not want to work at night and refuse to do so. People do not want to work weekends either. I raised with the Minister last week an issue about 18- to 25-year-olds. We have 20,000 people aged between 18 and 21 years on a payment at the moment where they get €117 per week, which will increase by €12 in January. For what, Minister? For sitting at home doing nothing. We should be creating an environment in which for them to work. I would welcome if the Minister would look at that. I do not know what he can do between now and the Finance Bill, but at this time 20,000 people earn €117 a week. I ask the Minister to create the environment for them to get out to work.

The Minister has a very big task ahead. I am not sure if the country is aware of the magnitude and severity of the energy crises that are coming down the line and the various things that are happening in the worldwide stock market. I ask the Minister to elaborate on that today because it will affect all sectors and not just the hospitality sector.

Pat Casey (Fianna Fail)
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I welcome the Minister and thank him for coming here. I would have preferred if the debate had been on the VAT in the hospitality sector rather than the specific 9% VAT because cases can be made about the different services offered by the hospitality sector. I will speak this afternoon maybe not as a Senator but as a hotelier who raised in the hotel industry. I have lived every day of it and every day there is some discussion about the hospitality sector in my family.

The industry has suffered its greatest shock since the advent of the Troubles in Northern Ireland, which set back our industry by more than 30 years. It has only been since the Good Friday Agreement that we have begun to see the true potential of tourism in Ireland. Unfortunately, the two years of Covid and the cost-of-living crisis, driven by rise in the cost of energy as a result of the war in Ukraine, have set the industry back a significant amount. That is why, when it was announced on budget day that the extension of the VAT rate was not going to be maintained, I was a little disappointed. I was disappointed that, given we, as a Government, had invested so much in the industry to keep family businesses afloat, as has already been identified, not to have kept the VAT for another period in order for the industry to recover to its true potential and reach where it was in 2019 is a missed opportunity. If there is the opportunity to prove the economic importance of having that, I would openly love that debate. That is what the Tánaiste referred to, which is that the economic situation will decide it.

The Minister has identified the importance of tourism. It is the one industry that goes across the whole nation. The industry is involved in every region and in every town and village. It is probably the single most important industry for rural Ireland. It is the lifeline for certain communities in Ireland. It is the only industry in certain regions in Ireland. Operating a tourism facility in rural Ireland is completely different from operating one that provides access seven days a week, 52 weeks of the year. That is why I pose a number of questions.

Why have so many hotels turned their back on what they believe to be their industry and offer their places as refugee centres? That has happened because the hotel sector, especially the budget and value hotels, has found it is no longer viable to keep the doors open. We all have immigrants somewhere in our families. My brother lives in America. We all have uncles and aunts living all over the world. We went for economic reasons. I welcome the Ukrainians. They have come here because of war. That is not the issue I am raising. I am raising the issue of the viability of the hospitality sector. If we look at the tourism reports that were published last September and the tourism market for the hospitality sector in 2022 compared with 2019, overseas tourism is down 49%, tourism from Northern Ireland is down 47%, and tourism from the Republic is down 35%. There is a huge gap to get back to where we were.

The second most identified thing about Fáilte Ireland was the skills and staff shortages, where 30% of businesses said they could face closure because of staff shortages. We are already seeing that, more appropriately, in the food sector where we have seen restaurants and cafés closing. They are either closing or they are on a four- or five-day week. In the hotel sector, certain aspects of hotel services are not being provided due to the shortage of staff. That is also not allowing us achieve the potential we have there and delivering on the viability.

Warehousing has been mentioned and I welcome the news yesterday about the extension of the scheme. The hospitality sector was the largest user of it. Nearly 30% of its tax debt has been warehoused. It is in excess of €402 million across 10,000 businesses. These businesses still have to repay that money, and they are in the tourism and hospitality sector.

Price gouging in the accommodation sector has been mentioned. That practice is not wholesale in the hospitality or hotels sector.We have more than 930 hotels in Ireland, the majority of which were behaving themselves. It has done irreparable damage to us in the domestic and international markets and I will not stand over that.