Wednesday, 9 July 2014
Department of Finance
VAT Rate Application
The introduction and retention of the reduced VAT rate of 9% on tourism related activity, including restaurant services and hotel accommodation was a significant policy measure undertaken by the Government to create and retain jobs in the tourism sector. Tourism is a key sector in the Irish Economy and the VAT reduction measure was aimed at reducing costs during a very challenging time for the sector. The objective was to boost tourism and create additional jobs and the measure has proven successful in this regard. While initially legislated to expire at the end of 2013, the 9% VAT rate was retained in Budget 2014 so that the gains made in terms of employment and activity in the sector were reinforced. This decision was undertaken at a cost of €350 million a year to the Exchequer. The application of the 9% VAT rate to tourism activity means that Ireland has among the lowest VAT rates in the EU on these services.
In Budget 2014 excise duty was increased on all alcohol products which resulted in an increase of 10 cent on a pint of beer or cider and a standard measure of spirits (inclusive of VAT) and 50 cent on a 75cl bottle of wine (inclusive of VAT). These increases are expected to raise €145 million in a full year. Budget 2013 also saw increases in excise on alcohol products. However, these increases should be viewed against a historical background of significant excise reductions on all alcohol products in Budget 2010 and very little change to excise duty on alcohol products for the previous ten years. It should be noted that the excise duty on Beer, Cider and Spirits, as a % of the average On-Trade retail price, are still lower now than they were in 2003.
I am aware of the contribution made by the On-Trade sector to the economy in the form of revenue in the current challenging environment. You will appreciate, however, that decisions were made in relation to excise rates in the context of the entire Budget. This Government has prioritised low taxation on income earned by employees, in preference to other areas. It is also important to look at the increase in excise on alcohol in Budget 2014 in the context of the retention of the 9% VAT rate for the hospitality sector, which has given rise to a positive impact for the sector in terms of increased activity and job retention.
As Minister, I have no direct function in the relationship between banks and their customers. I have no role in the day-to-day commercial and operational decisions of the banks. These decisions are taken by the board and management of the institutions. Notwithstanding the fact that the State is a significant shareholder in the banks, I must ensure that the banks are run on a commercial, cost effective and independent basis to ensure the value of the banks as an asset to the State, as per the Memorandum on Economic and Financial Policies agreed with the EU Commission, the ECB and the IMF.
The Credit Review Office helps SME or farm borrowers who have had an application for credit of up to €3 million declined or reduced by either Bank of Ireland or Allied Irish Banks, and who feel that they have a viable business proposition. They also look at cases where borrowers feel that the terms and conditions of their existing loan, or a new loan offer, are unfairly onerous or have been unreasonably changed to their detriment.55 % of appeals have been found in favour of borrowers. This is a strictly confidential process between the business, the Credit Review Office and the bank. Further details are available at .
In regard to the banks providing SMEs with timely access to finance, the Government announced that over €500million in additional credit will be made available to Irish SMEs through the establishment of the Strategic Banking Corporation of Ireland (SBCI) and I expect the SBCI to be facilitating lending before the end of this year. In addition, I recently launched an SME online-tool as a portal by which SMEs can establish what element(s) of the €2bn of State supports they may be eligible. The Supporting SMEs online tool can be accessed at .
In relation to the other matters raised in your question, childhood obesity and local authority rates are not a matter for me as Minister for Finance. These issues should be addressed directly to the Minister for Health and the Minister for Environment, Community and Local Government, respectively.