Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

In January of this year, officials from my Department compiled a ministerial briefing on a number of measures, including the temporary 9% VAT rate. This briefing included an economic assessment of the measure. The material outlined the macroeconomic backdrop to any extension of the 9% rate, noting that the economy has rebounded strongly from the pandemic and that economic activity is now above pre-pandemic levels. The briefing also contained an analysis of employment trends, reporting that employment in the sectors covered by the 9% rate was near pre-pandemic levels last year. While job vacancies in the 9% sectors were lower than the economy overall, they are still higher than the long-term average. Economy-wide employment could be classified as what economists term “full employment”. In addition, the briefing noted that the reduced rate is both regressive and very costly, and that this cost represents a transfer from taxpayers to the sectors which it covers.

The Government accepted the Department’s economic assessment, which found there was no longer an economic case for the temporary 9% rate and, therefore, decided upon a reversion to the 13.5% VAT rate. Specifically, the Government decided that the 9% VAT rate for the tourism and hospitality sectors will only apply until 31 August. This decision was made in recognition of the employment provided in the sectors to which the 9% rate applies, as well as to give businesses a transition period to adapt to the changing economic and policy environment. Finally, the Government was cognisant of avoiding adding to upward pressure on prices while inflation remains so elevated.

This extension, therefore, strikes a balance between the estimated €300 million cost to the public finances and the provision of support for these sectors through the busy summer period, after which the reduced rate will cease. I have already put on record, both tonight and in written parliamentary question replies, a summary of the economic assessment. I will discuss with my officials the issue of publishing it. I have no objection to the publication of the assessment and I have already provided a high-level summary of it.

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