Cut VAT to fight price rises and save jobs, says ISME

A 9 per cent rate of VAT is neither an anomaly nor a “gift to the hospitality sector” and should be permanently extended across the entire services industry to offset the worst of the cost of living crisis, the lobby group representing small and medium-sized businesses has said.

The Irish Small and Medium Enterprises Association (ISME) pointed to the benefits for employment and social contributions and said a move towards a 9 per cent VAT rate for the service sector would bring Ireland into line with other EU countries.

ISME notes that the standard VAT rate of 23 per cent is the sixth highest in the EU, while the reduced rate of 13.5 per cent is fourth highest. “This might be acceptable if Ireland’s consumer prices were otherwise more affordable, but they are not,” it said.

“Ireland has persistently been the second-most expensive country in the euro zone for many years after Denmark, but since 2021 we have overtaken the Danes to have the most expensive consumer prices.

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“According to Eurostat, Irish consumers pay 36 per cent more than the euro zone average for consumer goods and services. Only Norway, Iceland and Switzerland, all non-EU members, suffer higher consumer prices in Europe as a whole.”

It said that with a significant element of core inflation likely to continue in Ireland in 2023, and possibly into 2024, “Government should be looking at ways to push down consumer prices, not drive them up”.

ISME said that not only should the 9 per cent rate for hospitality be permanently extended but “we should lower our reduced rate from 13.5 per cent to 9 per cent for all services, including grooming services and housing. At this rate, our reduced rate would be in line with EU norms. We should also permanently reduce our 23 per cent VAT rate to our historical 21 per cent.

“Such a measure would be good for employment, good for consumers, and best of all for the exchequer who would reap the benefits of higher employment levels, income taxes and social contributions. This is not economic theory; it is established fact,” chief executive of ISME Neil McDonnell said.