Taoiseach Enda Kenny said today that businesses in sectors where the new lower VAT rates apply will be “failing Ireland” if they do not pass the reductions on to consumers.
Sales tax on restaurants, hotels, cinemas, newspapers and tourism-related activities falls from 13.5 per cent to 9 per cent today in a move Minister for Tourism Leo Varadkar described as one of the “most important” initiatives in the Government’s jobs strategy.
The measure is set to last only until December 2012, when it will be reviewed for the 2013 budget. There is no obligation on the industries to pass on the savings.
Speaking in Co Limerick today, Mr Kenny said the Government would have “very, very strident discussions” with businesses who fail to cut prices. “I think they are failing Ireland if they don’t pass this on. This is about ourselves, our people, our country,” he said. “This is an opportunity to really save many industries but also to build an indigenous economy that will create jobs and provide growth and opportunities for people.”
Speaking this morning, Mr Varadkar said it would be impossible for him to argue for an extension of the VAT cut for next year or for other concessions for the tourism industry if it failed to pass on the savings in the form of lower prices.
He admitted businesses could not be forced to reduce their overall prices on foot of the VAT reduction, though they were obliged to reduce the rate of tax they charged. However, he said he expected the vast majority of tourism operators to deliver lower prices for their customers.
A number of organisations representing businesses affected by the reduction - which also applies to theatres, hairdressers and golf clubs - have already said they expected their members would pass on the savings to consumers.
Welcoming yesterday’s call by the Restaurants Association of Ireland and the Irish Hotels Federation on their members to pass on the savings, Mr Varadkar said the move will help to make Ireland “an even more attractive destination for tourists".
The aim of the lower rate is to reduce costs in the tourism sector, improve competitiveness and create jobs. The reduction was a central measure in the Government’s jobs stimulus plan, which was announced in May.
Speaking yesterday, Taoiseach Enda Kenny said he expected businesses to reduce their prices in line with the reduction. “The industry had better understand that this is a situation where they must pass these reductions on to the customer,” he said.
Minister for Enterprise Richard Bruton said he would keep an eye on the impact the reduced rate had on sales and job-generation in the tourism sector.
Adrian Cummins, of the Restaurant Association of Ireland, welcomed the development and said the organisation had instructed its members to pass on savings. “This is the first step in the road to recovery and we will continue to advocate for the abolition of joint labour committees and Sunday premium payments,” he said.
Mr Cummins said the savings would equate to a €1 reduction on a €25 meal in a restaurant. Fast food chain McDonald’s, which has 78 outlets in Ireland, said the price of products such as a Big Mac meal would fall by 25 cent from today
Tim Fenn, chief executive of the Irish Hotels Federation, said its members had also been asked to pass on the savings and said the organisation is pleased tourism is at the centre of Government plans for growth and recovery.
Frank Cullen, of the National Newspapers of Ireland, said the organisation had campaigned to have the rate reduced as the tax on newspapers was among the highest in the EU. The recommended retail price of The Irish Times will decrease to €1.85 on weekdays and to €2.15 on Saturdays.