Michael McGrath (Cork South Central, Fianna Fail)
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As the Deputy will be aware the 9 per cent VAT rate applied on a temporary basis to the hospitality and tourism sectors until 31 August 2023 when it reverted to the 13.5 per cent rate. The 9 per cent 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 per cent was to lower consumer prices, encouraging higher demand, more output and an increase in employment.

Despite facing numerous successive headwinds over recent years, the domestic economy has proven to be remarkably resilient. Looking ahead, as inflation eases, the real disposable income of households should recover and support consumer spending. As a result, households are on a stronger financial footing and this will support demand for contact-intensive services including the tourism and hospitality sectors.

In relation to employment, between the end of 2020 when the 9 per cent rate was re-introduced, and the third quarter of 2023, total economy-wide employment expanded from 2.3 million to reach a record high of 2.66 million, an increase of 17 per cent. The Q3 2023 Labour Force Survey indicated that employment in the accommodation and food service sector stood at 181,000.

It is noteworthy that 14 EU countries have a VAT rate of 12 per cent or higher on food services. Our nearest neighbour in Great Britain and Northern Ireland has a VAT rate of 20 per cent on food services.

It is important to remember that VAT reductions, even temporary VAT reductions, have a cost to the Exchequer. The estimated cost of the 9 per cent 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 cost of a further temporary VAT reduction to 9 per cent for a full year is estimated to be €764m. Even where the measure is restricted to food and catering services, the estimated full year cost is €545m.

The Government wants to maintain a healthy and profitable environment for these sectors 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.

In light of these points I have no plans to reduce the VAT rate for the tourism and hospitality sector to 9 per cent.

Michael McGrath (Cork South Central, Fianna Fail)
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As the Deputy may be aware, in Section 38 of Finance Act 2018 a partial repayment of Vehicle Registration Tax (VRT) was removed. It reflected the VRT charged on the VAT element of the vehicle. The relief was a legacy from 1993 when vehicle excise duty was being replaced by VRT, to ease the transition for car leasing and hire companies, by ensuring their costs didn’t increase under the new VRT regime.

By 2019 the original compensatory rationale for the scheme had passed and the application of the repayment scheme bore no relation to its original purpose. At the time of its removal the repayment cost the Exchequer over €20m a year.

In the interim there has been significant reform of the VRT regime. The environmental rationale has been strengthened significantly, with lower rates for low emission vehicles (7% for EVs and well-performing hybrids) and higher rates for high emission vehicles. If the sector is registering vehicles with average or below average emissions, the applicable VRT will be much lower than the rates in 2018.

However, I am aware of the car rental's sector on this issue and the matter will be examined as part of the normal budgetary process.