Government given election warning over 9pc VAT rate
Hoteliers and restaurateurs have warned the Government not to tinker with the special 9pc VAT rate for their sectors in the upcoming Budget, as new Revenue figures show that reverting to a 13.5pc levy would raise an extra €527m in a full year.
The head of the Restaurants Association of Ireland, Adrian Cummins, claimed that it would be a "broken promise" by the Government if the 9pc VAT rate reverted to 13.5pc, given that there was a commitment to it in the Programme for Government.
"I would hope, if they are looking at an early election, that they would think about that," he said.
The Programme for Government said the reduced VAT rate would be kept "providing services remain competitive".
But with the European Commission the latest to recommend that Ireland should broaden its tax base, hiking the 9pc VAT rate would be one of the ways that the Exchequer's coffers could be boosted.
"In view of the heightened external risks, reducing tax expenditures and broadening the tax base would be prudent," said the Commission last week.
Finance Minister Paschal Donohoe has said a report into the 9pc rate is almost complete.
"My department has undertaken an economic review of the 9pc VAT rate ahead of this year's Budget and the report is currently in the finalisation stages," he told former Tánaiste Joan Burton in a written reply to a Dáil question.
Mr Donohoe added: "The Revenue Commissioners' most recent estimate for reverting the reduced 9pc VAT rate back to 13.5pc is that it would bring in extra revenue of €527m. I am also advised by the Revenue Commissioners that an estimate for the cost of the measure in 2019 is not yet available."
The 9pc VAT rate was introduced in 2011 in the depths of the financial crisis as a special measure designed to support a number of sectors.
It applies to hotels rooms, campsites and caravan parks, many of the items - including food - sold by restaurants, the sale of printed newspapers and magazines, hairdressers, cinemas, theatres and fun fairs.
While the 9pc rate has been retained since it was introduced, ministers - including Mr Donohoe's predecessor, Michael Noonan - have warned that it will only be kept if consumers benefit. Hotel and restaurant bodies have credited the VAT rate with helping to create tens of thousands of jobs.
Last year, Mr Donohoe said he had to consider a number of potential economic impacts if the rate reverted to 13.5pc.
"One of the issues I have to consider is the number employed by the tourism industry and in the service sector," he said. "For example, the impact on sterling of Brexit, and therefore the number of British visitors coming to Ireland, has to feed into the decision."
Mr Cummins insists that the 9pc VAT rate is the "correct rate of VAT when you benchmark against the EU-28".
He said: "Nobody knows how Brexit is going to pan out, so if you have a hard Brexit and UK tourism - or our tourism generally - plummets because of it, I think the Minister of Finance needs to be prudent and the Budget needs to be Brexit-proofed."
He added that the rate should be retained "for the foreseeable future".
The president of the Irish Hotels Federation, Michael Lennon, is "fairly confident" that the rate will be retained.
"I think it's been very successful so far," he said. "We need some kind of support and help to open up new attractions, new hotels and new entertainment."
Mr Lennon, who owns the Westport Woods Hotel in Co Mayo, said raising the rate would have a particular impact on regional hotels.
Revenue per available hotel room jumped 13.6pc in Dublin and by 18.3pc outside the capital during May.