The Government may be forced to raise more taxes than expected on fuel because of resistance to significant changes to the special VAT rate for the hospitality sector.
Minister for Finance Paschal Donohoe has met strong opposition to proposed changes to the 9 per cent rate for hotels, restaurants and other businesses, particularly from the Independent Alliance.
The Government is relying on changes to the 9 per cent VAT regime – which was reduced from 13.5 per cent during the crisis – to bring in hundreds of millions of euro. However, senior Government sources said that, as well as the already anticipated increase in carbon tax, increases in excise duties on petrol and diesel may be needed to fund Mr Donohoe’s budget package if the VAT increase is throw into doubt.
Mr Donohoe and Fianna Fáil, whose acquiescence is needed to pass the budget, agree there is only €800 million available for new commitments. This means some taxes will have to be raised for a package of measures expected to be well over €1 billion.
One well-placed source indicated the VAT rate is likely to rise from 9 per cent to 13.5 per cent, although it may only apply to certain sectors such as businesses that sell “accommodation” such as hotels, guesthouses and bed and breakfasts.
Relations between the Alliance and those in Fine Gael have become strained on the issue. There was considerable anger in Government when Finian McGrath, Minister of State for Disability Issues, challenged Minister for Business Heather Humphreys on the effect of a VAT rate rise on small businesses at a Cabinet meeting earlier this week.
Mr McGrath said significant changes to the 9 per cent rate would “screw” businesses. On foot of his intervention, sources said increases in excise on petrol and diesel may have to be introduced.
‘Cripple’ motorists
However, one source cautioned that such an increase is unlikely to be introduced because it would “cripple” motorists, who are already expecting an increase in prices at the pump anyway because of a carbon tax increase.
It was added that the Independent Alliance would instead have to face up to the alternative tax rises needed if the VAT increase was abandoned or decreased.
Many of the ideas put forward by the Alliance have not been taken seriously by officials and those in Fine Gael. Minister for Transport Shane Ross is said to be particularly annoyed by recent developments.
There have been suggestions from Government figures that Independent Galway West TD Noel Grealish could be asked to support the Government, although Mr Grealish did not return calls.
A planned meeting between the Independent Alliance and Mr Donohoe was postponed on Wednesday, and Mr Ross in understood to have met Mr Donohoe on his own.
Meetings between Fianna Fáil and Mr Donohoe are also ongoing, with the overall budget package not expected to be finalised until the weekend.
Budget day is next Tuesday, October 9th.