Verona Murphy (Wexford, Independent)
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72. To ask the Minister for Finance the consideration he is giving to the reinstatement of the 9% VAT rate; and if he will make a statement on the matter. [28769/24]

Verona Murphy (Wexford, Independent)
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I am sure the Minister will be aware of the higher prices being charged in the tourism and hospitality sectors over recent years. The increasing costs of operating a business in the industry ultimately mean that the customer has to pay more for goods and services. At the moment the Government is playing a three-card trick on businesses. On the one hand, it is providing grants to businesses to help them offset the rising costs but, on the other, it is responsible for raising those costs in the first place. Every transaction in our tourism and hospitality sector is made at least 13.5% more expensive by this Government. What consideration is the Minister giving to the reinstatement of the 9% VAT rate?

Jack Chambers (Dublin West, Fianna Fail)
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As the Deputy will be aware, the 9% VAT rate was applied on a temporary basis to the hospitality and tourism sectors until 31 August 2023 when it reverted to the 13.5% rate. The 9% rate was introduced on 1 November 2020 in recognition of the fact that the tourism and hospitality sectors were among those most impacted by the public health restrictions put in place throughout the pandemic. The economic rationale for a VAT rate reduction at that time, as it was in 2011 when it was also reduced to 9%, was to lower consumer prices, encouraging higher demand, more output and an increase in employment.

Despite facing successive headwinds over recent years, the domestic economy has proven to be remarkably resilient. Looking ahead as inflation eases, the real disposable income of households should recover and support consumer spending. As a result, households are on a stronger financial footing and this will support demand for contact-intensive services, including the tourism and hospitality sectors.

With regard to employment, between the end of 2020 when the 9% rate was reintroduced and the final quarter of 2023 total economy-wide, employment expanded from 2.3 million to reach a record high of 2.7 million, an increase of more than 17%. The fourth quarter 2023 labour force survey indicated that employment in the accommodation and food service sector stood at 183,000. It is important to remember that VAT reductions, even temporary VAT reductions, have a cost to the Exchequer. The estimated cost of the 9% VAT rate for tourism and hospitality from 1 November 2020 to 31 August 2023 was €1.2 billion. This represented a very substantial support by the Government to those sectors. The cost of a further VAT reduction to 9% for a full year is estimated to be €764 million. Even when the measure is restricted to food and catering services, the cost is €545 million. In making any decision on VAT rates or other taxation measures, the Government must balance the cost of the measures in question against their impact in the overall budgetary framework.

Finally, the Deputy should note that any decision about VAT rates for this area is a matter for consideration as part of the budget 2025 process.

Verona Murphy (Wexford, Independent)
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I know it is part of the consideration. The Minister just accused Deputy Doherty of being a eurosceptic. Maybe he is one himself, given that the VAT rate for hospitality is lower in other European countries and most major European cities. It is only 7% in France and Germany. In destinations such as Portugal it is 6% and Greece it is 6.5%. Spain and Italy are at 10% and yet we persist with 13.5%.

I received an email from a concerned business owner who is a very reputable operator in the hospitality sector in Rosslare, who says that the Government's increases have cost his business €1 million a year. Apart from the VAT increase, there is the 12% increase in the minimum wage, changes in parental leave, an extra bank holiday, higher PRSI, and statutory sick leave, all of which have served to increase the wage bill.

On top of that, from yesterday, we now have auto-enrolment for pensions. The further cost burden being experienced by this person is a 15% rise in food costs. To be fair, waiting until the budget will mean it will be too late for many. More than 200 restaurants have already closed in recent months.

Jack Chambers (Dublin West, Fianna Fail)
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To give some context, the VAT rate for hospitality in Ireland compares favourably to our nearest neighbour, as Britain and Northern Ireland maintain a 20% VAT rate for the sector. Across the whole EU, Ireland is one of 14 countries with a rate at 12% or higher for hospitality. On accommodation, Ireland is one of seven member states that have a rate at 12% or higher. The Government has provided significant support to businesses throughout a period of increasing costs. Budget 2024 contained a number of measures that will support businesses facing increased costs, including the increased cost of business, ICOB, grant, which aims to provide financial support to small and medium-sized businesses operating from a rateable premises, at a cost of €257 million. Additionally, other measures have been outlined by my colleague, the Minister for Enterprise, Trade and Employment, Deputy Burke, including increasing the employer PRSI threshold from €441 to €496 with effect from 1 October. This will ensure that employers with employees earning the weekly equivalent of the national minimum wage will pay the lower rate of employer PRSI of 8.8%. The measures also include launching a second phase of the ICOB scheme targeted at businesses in the retail and hospitality sectors and doubling the innovation grant scheme from €5,000 to €10,000. We have provided other supports for businesses throughout the year. As I said, we have not yet made any decisions relating to budget 2025.

Verona Murphy (Wexford, Independent)
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With due respect, clearly everything I outlined in my first contribution highlighted that those business supports are only able to counteract the rising costs. They are not actually assisting businesses, which are going bust, for the want of a better expression, simply because we do not have people with high-end jobs and residual income to be able to go out and spend on a night out due to the Government's increase in the VAT rate. It is anti-competitive. We are seeing lower rates all over Europe. Regardless of the 14 countries mentioned by the Minister, some of our main destinations, including France, Italy and Spain, have much lower rates. We are trying to compete as a country. We do not have the weather. I come from the sunny south east but we have not had much sunshine. Businesses and their employees are extremely concerned. I am one of them. Unfortunately, waiting for this measure, which we have asked for before as a group and I have asked for independently, will mean it is going to be too late for many. Responsibility for that will rest strictly with what has happened during the Minister's term of office.

Jack Chambers (Dublin West, Fianna Fail)
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We will engage with the business community. It is important to say that the context now is different from it was during the Covid pandemic and the very high and difficult levels of inflation we experienced in the economy. We are entering a more regular budgetary environment. We will set out more on that the summer economic statement next week. With inflation easing, we expect the domestic economy and the real disposable income of households to strengthen and improve during the year, which will help retailers and the hospitality sector through the year. That will make a difference too.

Separately, my colleague, the Minister, Deputy Burke, is doing a great deal of work on the cost of running a business and the supports we have put in place, which I outlined. As part of budget 2025, we will engage with everybody. It is important to note that we are entering a different budgetary framework from what we had in the previous four years. We must ensure we are careful because we have risks in the economy. We cannot continue to have repeated temporary interventions in the years ahead. We have to enter a more regular position to plan for the medium to long term.