Written answers

Tuesday, 9 December 2014

Department of Finance

VAT Rate Reductions

Photo of Brendan  RyanBrendan Ryan (Dublin North, Labour)
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182. To ask the Minister for Finance the steps he has taken to ensure that the tourism and hospitality sector is passing on the 9% VAT rate directly to consumers; and if he will make a statement on the matter. [47227/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The 9% Vat rate has been broadly welcomed by the tourism and hospitality industry since its introduction as part of the Jobs Initiative.

I indicated in my Budget speech that the 9% VAT rate will remain under review and have made it clear to the sector that if the reduced rate is not passed onto consumers, I will revisit the case for its retention. For ease of reference, I have included an excerpt from my Budget day speech:

"The reduced 9% rate of VAT on tourism related activities has been a great success and there are now an extra twenty three thousand employed in the sector since mid-2011.

This initiative is delivering and I am retaining the 9% VAT rate for these services. In the light of reports of rising prices in this sector, it is incumbent on the industry to ensure that this relief continues to be passed through fully to the consumer. However, let me be very clear, the taxpayer cannot be the only stakeholder keeping costs down in the sector. If prices begin to rise, the case for retaining the measure diminishes."

When I originally announced the Jobs Initiative in 2011, I made it clear that the effects of the VAT reduction would be reviewed before Budget 2013 to ensure that it encouraged employment in the affected sectors. This analysis of the VAT rate reduction, carried out by my Department, looked at the rate of pass through to final consumers and the employment effects. It demonstrated that prices in the basket of goods and services covered by the Jobs Initiative had fallen by 1.5% between June 2011 and June 2012. This is compared to inflation of 0.3% for non-Jobs Initiative goods and services even after removing the effects of rising energy prices.  My Department will continue to monitor developments in this regard.

In addition to presenting evidence on the pass through of the VAT rate reduction the paper also noted evidence of job growth as a result of the policy. The 'accommodation and food services' sector of the economy (which accounts for 70% of the Jobs Initiative basket) experienced employment growth of nearly 6% over the period June 2011 to June 2012. This is compared to a fall in employment of 3% in the services sector (excluding the public sector). While it cannot be known with certainty what the true impact of the VAT rate reduction was this research suggests that the VAT rate reduction had the desired effect on prices and employment.


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