Temporary 9% VAT rate for hospitality likely to end on schedule at end of month

There are growing indications that the temporary 9 per cent VAT rate for the hospitality industry will not be renewed after its scheduled end date of February 28th.

Minister for Finance Michael McGrath said on Tuesday morning that no decisions has been made by Government as yet on increasing the VAT to the standard 13.5 per cent rate.

Speaking in Brussels before a meeting of European finance ministers, Mr McGrath said that the Government’s Spring package to address cost-of-living issues would include universal and targeted measures.

He listed some of the measures that could be considered by the Coalition in the coming fortnight but did not include the continuation of the lower VAT rate, which was introduced in 2020 after the first Covid lockdown.

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Despite intensive lobbying the hospitality industry, Government sources have said it is likely that the incentive will come to an end on February 28th. Officials from the Department of the Finance have argued for its discontinuation, citing costs of €400 million between now and the end of the year.

Taoiseach Leo Varadkar, Tánaiste Micheál Martin, and Minister for Climate Change Eamon Ryan will meet on Thursday along with the two economic ministers, Mr McGrath and Paschal Donohoe. The meeting will finalise details of the cost-of-living package and agree on its overall cost. The package will then be brought to the Cabinet meeting next Tuesday for final approval.

On Tuesday morning, Sinn Féin’s finance spokesman Pearse Doherty confirmed his party would not oppose the ending of the VAT reduction if the report from Department of Finance gave assurance that hospitality would not be adversely affected.

On Monday evening, Mr McGrath and Minister for Public Expenditure Mr Donohoe met representatives of the hospitality sector in Government Buildings to discuss the reduced rate, which has been in place since the Covid lockdown in 2020.

The Ministers spent most of the meeting listening to the concerns of representatives. They gave no indication if the rate would increase or remain at 9 per cent.

In a statement issued afterwards hospitality representatives said they were hopeful the Ministers would agree to keep the lower rate in place, as it would protect low-margin businesses like restaurants, pubs and cafes.

Speaking in Brussels Mr McGrath said among the measures that the Government might consider would be electricity incentives, the continuation of excise duties on petrol and diesel, business energy support schemes, as well as supports for vulnerable households.

“We have to look at it in the round, to look at the overall package to ensure that it is affordable (and fair),” he said.

Mr Doherty, speaking on Morning Ireland, said Sinn Féin was not opposed to the VAT change for hospitality but would seek assurances that it had minimal impact.

He said his party would seek a “tailored and time bound mortgage interest relief” that would help householders faced with increasing interest rates, especially those now paying 7.5 per cent.

Mr Doherty said the Government package last autumn did not go far enough. His party was calling for a Spring bonus, which would include a double payment for all welfare recipients now, he said. Sinn Féin also wanted an expanded fuel allowance scheme, more childcare supports and more rent credits, he said.

The Department of Finance has opposed the lower rate for some time. Officials at the Department believe there is no grounds for its ongoing retention as it is no longer an emergency measure.

A Government source said last week it was “looking unlikely at this stage that it’ll be retained” – a belief mirrored by several Coalition sources who spoke privately over the weekend.

There is a growing belief that the Government will divert the estimated €400 million cost of the lower VAT rate to other priority areas, as part of its cost-of-living package.

The president of the Irish Hotels Federation, Denyse Campbell meanwhile said on Tuesday morning that the sector remains hopeful that the Government “will continue to support the industry” and not return the VAT rate to 13.5 per cent.

Ms Campbell told RTÉ Radio’s Morning Ireland that the Government needed to prioritise a sector which she said employs one out of 10 people in the country, with 70 per cent employed outside Dublin.

Returning the VAT rate to 13.5 per cent from the nine per cent introduced during Covid lockdown in 2020 would make it the third highest rate in Europe, she said. The nine per cent rate was in line with most European countries.

The VAT rate needs to stay at nine per cent to maintain competitiveness for the industry, added Ms Campbell. The cost of doing business had escalated with the sector experiencing “crippling increases” of 300 per cent in energy bills, 28 per cent for food and increased linen costs.

Tourism figures last year were 27 per cent lower than 2019 so the sector was still recovering, she said. “We are pleading with the Government. This is about €400m at a time when the consumer does not need extra costs.”

Ms Campbell described the lower rate as “the correct rate”. When asked about reports of price “gouging” by Dublin hotels she said that their research had shown that Dublin prices rose 18 per cent in three years. “The price of the last few rooms are not reflective of the value that is there for customers,” she said.