The Independent Alliance was forced to concede a hike in VAT to 13.5 per cent for hotels and restaurants in the budget after it was told the alternative was to put as much as 10 cent per litre on diesel, it has emerged.
The junior coalition partner had resisted any change in the 9 per cent rate for the hospitality sector but acquiesced after a meeting with Minister for Finance Paschal Donohoe on Saturday in which all major measures were agreed. It will form a central part of Mr Donohoe’s revenue-raising measures for his second Budget, which he will present to the Dáil on Tuesday.
Mr Donohoe insisted the measure to stimulate the tourism industry, in place since 2012, could no longer be justified given the buoyant state of the sector.
According to a reliable source in the Alliance, the alternative measure was more unpalatable.
“The political fallout from the rise in diesel would be much greater, as many more people would be affected by it,” said the source.
Earlier suggestions, such as a new intermediate 11 per cent rate, or a hike for hotels alone, were ultimately rejected. Only a few sectors will benefit from the lower 9 per cent rate, namely the media; sports facilities, ebooks, and, possibly, hairdressing.
Adrian Cummins, chief executive of the Restaurant Association of Ireland, responded last night by saying it was a body blow for his sector.
“The bottom line will be that hours will be cut and many restaurants and businesses will have to lay off staff. It’s a knee-jerk reaction and it’s not Brexit-proofed,” he said.
Fresh spending
The increase in VAT is expected to raise €400 million in 2019 and will help bring the total of fresh spending in the €3.3 billion package to an anticipated €1.5 billion (a further €1.8 billion in spending has already been committed).
Tax cuts are expected to total €300 million. There is expected to be slight decrease of 0.25 per cent on the 4.75 rate of universal social charge applied to incomes between €19,300 and €70,000. The lower tax band will rise by €750 to €34,550.
Yesterday, the chairman of the Government’s own budgetary adviser, the Irish Fiscal Advisory Council, Seamus Coffey, criticised the Government’s budgetary approach saying it was not producing credible plans setting out the consequences of additional costs.
He said there was €1 billion in extra expenditure last year not captured by last October’s budget, primarily caused by health sector over-runs.
A spokesperson for Mr Donohoe responded last night by saying the Budget would be balanced.
Dismissed
Taoiseach Leo Varadkar dismissed any suggestion that it would be an election budget despite it containing cuts in USC, and in income tax for middle- and higher-income earners.
Speaking before the Fine Gael presidential dinner at the weekend, he said: “If it were an election budget we would probably be running a massive deficit which we don’t do.”
He said it was the first time in a decade that a balanced Budget would be achieved.
The Budget will also include a measure, claimed by Fianna Fáil, for affordable homes worth €100 million per annum over three years. Sinn Féin housing spokesman Eoin Ó Broin yesterday said that it represented only €25 million of new spending. Fianna Fáil finance spokesman Michael McGrath responded that Mr O Broin was “not joining the dots properly and should keep his powder dry” until the Budget is announced.
