The Government should consider “a more focused set of policy actions” than the reduction of VAT to 9 per cent if it wants to help the hospitality sector, the National Competitiveness and Productivity Council has advised in it pre-Budget submission.
The 15-member council, which is chaired by Dr Frances Ruane and includes representatives of employer groups, trade unions and a number of State bodies, said the “rationale underpinning any change” to the current rate of VAT applied to the sector “merits careful consideration in light of the global situation”.
In its Budget 2026 and Competitiveness: Navigating Uncertainty document, it suggests measures more specifically targeting the underlying cost pressures being experienced by business owners “would likely be more effective” than the across the board VAT cut committed to in the Programme for Government “particularly as VAT is paid by the consumer” (rather than the service provider).
Citing the council’s own Challenge report from earlier in the year, it suggests the available evidence shows “a net expansion in the number of firms in Ireland’s hospitality subsector, as well as employment and earnings”.
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“This sector has also made a visible recovery post-pandemic, as measured by Gross Value Added,” it said.
Proponents of the cut, including Minister for Enterprise Peter Burke, have argued support is needed for a sector which employs some 200,000 people and has total revenues of €9 billion.
Opponents to the cut, which would cost an estimated €626 million over the course of a full year if applied to the food and beverage subsector, have argued that recorded business registrations and employment growth suggest no new supports are required.
Ged Nash, Labour’s spokesperson on Finance, said an “already thin case” for the cut was “narrowing further”.
In the face of the council’s reservations and those already expressed by others, “the Minister for Enterprise must stop prevaricating and publish the evidence he is relying on to back up his case,” for such a substantial measure.
The council, meanwhile, has recommended the Government exercise fiscal restraint, adhering to its own national spending rule, which would limit growth in core net spending to 5 per cent, in next month’s Budget
It says priority should be given to “investment in competitiveness and productivity-enhancing reforms ... most notably in addressing the infrastructure deficit with Ireland’s international competitiveness ranking under this heading declining significantly over the past couple of years, it suggests.
It recommends measures to ensure Irish businesses are well placed to avail of European initiatives and supports and that they are further supported in their efforts to diversify their export markets.
Among the council’s other recommendations are a more focused use of the National Training Fund with supports for Lifelong Learning targeted at specific groups including older men and those working in sectors particularly impacted by technological change.
It also calls for measures to drive the adoption of AI in the public service so as to boost productivity.
