Senator Sharon Keogan — 9% VAT Rate for Hospitality Sector
I thank the Minister for coming in. I know how busy he is. It is always good to have the Minister for Finance here. I always say that governments do not create employment, but that they create the environment for employment. Taking away the 9% VAT rate will not be a good environment for continuing employment.
This Government published the tourism recovery plan for 2020 to 2023 in October 2020. A total of 75% of spending on Irish tourism relies on foreign investors. A total of 100,000 people in accommodation and food services received the pandemic unemployment payment, with more tourism and hotel jobs receiving Government wage subsidies. The Government agreed in May of this year to extend the 9% VAT rate that applies to the tourism and hospitality sectors for a further six months until the end of February 2023, at an additional cost of €250 million.
As no further extension to this measure is envisaged, a 13.5% rate will apply to these sectors from 1 March 2023. Mr. Adrian Cummins, CEO of the Restaurants Association of Ireland, said:
The 9% rate must stay in place due to the ongoing cost of living and energy crisis. If the rate of VAT rises to 13.5% it means a 50% increase and will make Ireland the second highest in the EU for this rate. The 9% VAT rate, ending in February of next year, would only increase costs for consumers and raise concerns about Ireland's competitiveness compared to our EU counterparts.
The Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media, Deputy Martin, said she had fought to retain the 9% hospitality rate in the 2023 budget and that the lower rate has been vital to the recovery of the sector's post Covid. In light of the recent forecast from the IMF, we need to keep the recovery up. I would like to talk about the IMF today and ask the Minister to give me some insight into its visit last week because the IMF has said that things are going to get much worse.
Conor Walsh, tax partner at Deloitte, said:
Many businesses operating in this industry are facing steep competition, with inflationary pressures mounting. Where future changes are envisaged, these should be balanced against the likely impact to small and medium sized businesses in the coming years.
As always, multinational companies will be able to absorb the VAT hike and it will be the SMEs working in the sector that will struggle, falter and fail. The estimated cost to the Exchequer of the planned extension is €250 million. I am not sure I even want to know the overall total we have spent across Covid in supporting businesses, households and individuals, but I am sure that this current measure is a drop in the ocean. A VAT hike in the coming year will kill businesses, and instead of the Exchequer getting 9% rather than 13.5%, it will get nothing from sunk hotels and venues, and it will be spending money to fund welfare for these people.
Five hundred hotels in this country, or one in four hotels, are paid for by the Government to provide 30,000 beds for Ukrainians. That is the commitment this Government has made. The VAT rate hike is a slap in the face for hotels and restaurants that are rowing their own boat trying to manage this crisis. Many of these will go to the wall and that is a fact. Employers are now being crippled with PRSI, and the new year will see the introduction of the minimum wage increase, pension auto-enrolment and the introduction of statutory sick pay. With the cost of fuel rising and the other costs of doing business, how will these hotels find extra money to pay the extra 4.5% hike in VAT? How many restaurants and hotels have warehoused their taxes? Do we know that number? If we have not got that figure and some of those people have warehoused their taxes, which is an option that has been extended to May, these owners may as well close their doors after Christmas because they are not going to be able to afford the tax hikes, their rates going up and the warehousing of the taxes and repayments. People are already looking at what nights they are going to be able to go out. They are not going to be able to go out at night during the weekends. They are going out for lunch but they are not going out at night, so daytime trade may survive.
We also need to look at employment. People do not want to work at night and refuse to do so. People do not want to work weekends either. I raised with the Minister last week an issue about 18- to 25-year-olds. We have 20,000 people aged between 18 and 21 years on a payment at the moment where they get €117 per week, which will increase by €12 in January. For what, Minister? For sitting at home doing nothing. We should be creating an environment in which for them to work. I would welcome if the Minister would look at that. I do not know what he can do between now and the Finance Bill, but at this time 20,000 people earn €117 a week. I ask the Minister to create the environment for them to get out to work.
The Minister has a very big task ahead. I am not sure if the country is aware of the magnitude and severity of the energy crises that are coming down the line and the various things that are happening in the worldwide stock market. I ask the Minister to elaborate on that today because it will affect all sectors and not just the hospitality sector.