Michael McGrath (Cork South Central, Fianna Fail)
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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 (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 of time. 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.

The economic rationale for a VAT rate reduction at that time as it was in 2011 when it was also reduced to 9% was to lower consumer prices, encouraging higher demand, more output and an increase in employment.

However, it is important to remember that VAT reductions, even temporary VAT reductions, do have a cost to the Exchequer. The estimated cost of the 9% VAT rate for tourism and hospitality, from 1 November 2020 to 31 August 2023, was €1.2 billion. This represented a very substantial support by the Government to the hospitality and tourism related sectors.

The Government obviously wants to maintain a healthy and profitable environment for the sector going forward. However, in making any decision in relation to VAT rates or other taxation measures, the Government must balance the costs of the measures in question against their impact and the overall budgetary framework.

I have no plans to reduce the VAT rate for the hospitality sector to 9%.