Tánaiste Simon Harris may yet come to regret the elevation of a manifesto commitment to cut the rate of VAT charged on hospitality to the level of “solemn promise” as he did this week at the National Economic Dialogue.
Manifesto commitments can be discarded quite easily, especially when part of a coalition. Solemn promises not so much.
The already tenuous argument for promoting the needs of the hospitality sector over all the other Budget Day supplicants can only get weaker as the summer unfolds and the twin threats to the global economy of Donald Trump’s tariffs and the conflict between Israel and Iran unfold.
The idea is strenuously opposed by the Department of Finance which came out against it in the run-up to last year’s budget. Officials noted that it represented an “enormous fiscal transfer of taxpayers’ money to the sector which the evidence available at present does not support”.
Their opposition is unlikely to waver this time around. The central plank of their argument – that employment and prices in the sector are growing strongly despite a number of high-profile restaurant closures – remains robust.
The Labour Force Survey for the first quarter of the year was published last month. It showed that the numbers working in accommodation and food services activity – which is seen as the relevant category for hospitality – reached 186,000, up almost 7 per cent on the first quarter of 2024.
The most recent inflation figures – for last May – show that restaurant and hotel prices are rising faster than prices in the economy as a whole. They rose by 2.8 per cent over the past 12 months compared with 1.7 per cent for the consumer price index overall.
The department will no doubt point to the continuation of the trend of rising employment levels and falling prices in the sector despite the levying of the standard VAT rate when the issue comes up for discussion over the summer
But the indications are that their entreaties will fall on deaf ears and the Government will be swayed by industry lobbying rather than hard facts at a cost of €790 million to taxpayers.
