Unions have described Government plans to cut the VAT rate for the hospitality sector in the budget as “economic vandalism” after it emerged such a move could severely limit the room for other tax cuts in the budget.
Minister for Finance Paschal Donohoe confirmed on Tuesday that moving ahead with the plan would carry a full-year cost of up to €1 billion from a tax package worth up to €1.5 billion – in turn limiting the scope for income tax cuts or for tax measures aimed at encouraging the supply of new homes.
The programme for government promises measures to support SMEs, in particular those in the retail and hospitality sector.
It spells out that this will “entail changes to VAT, PRSI and other measures” as part of the budget process – but does not spell out specific commitments. The Department of Finance has long-harboured a deep ambivalence about the benefits of such a tax cut, which was reinstated.
READ MORE
Tánaiste Simon Harris has previously said the Government made a “solemn” promise to cut the VAT rate for hospitality in the budget.
In a statement on Wednesday, the Irish Congress of Trade Unions said the facts about the hospitality sector do not justify the tax cuts, arguing the sector is now growing, with 11 new companies incorporated for every liquidation – and employment 7 per cent higher than in the first three months of this year than a year earlier.
ICTU general secretary Owen Reidy said that the proposal “flies in the face of all available evidence and would amount to nothing less than economic vandalism”. He said that the hospitality industry lobbyists suggested that the sector was struggling. “Looking at the facts, we now know that this is simply not the case.
“Hospitality is a sector rife with low-paid employment and poor conditions, and all evidence suggests that the reduction in VAT will not be passed on to consumers or staff, but pocketed by employers.
“The Government has identified many laudable priorities as part of its Programme for Government: housing, reductions in child poverty and investment in disability services. Government cannot keep narrowing the tax base while promising better public services.
“Given that Ministers have been giving serious warnings about economic uncertainty, why would they prioritise a corporate handout costing almost €1bn?
“Simply put, there is no economic rationale for the VAT cut”.
Earlier today, Minister for Enterprise, Tourism and Employment Peter Burke defended plans to cut VAT for the hospitality sector.
“The tourism sector is a very important part of the economy. At this point in time, over 200,000 people are employed in it. It’s a €9 billion sector. And it’s so important to try and keep that sector sustainable,” he told RTÉ’s Today show.
“We’ve seen over the last number of years a very significant number of independent small food outlets and coffee shops come under pressure, many restaurants closing their doors. But this is a jobs measure to sustain the employment in that sector,” he said.
The Minister said the best value for money would be to sustain jobs.
The Restaurant Association of Ireland’s new president, Sean Collender, told the Today show the VAT reduction would be an important step to support the industry. He outlined the challenges faced by it including rising costs such as labour, energy and other operating expenses.
He also spoke of the need for a broader framework and support from the Government to help the hospitality industry remain viable, beyond just the VAT reduction. This includes addressing issues such as the risk-reward ratio for opening businesses and the high failure rate in the industry, he said.
