The Government’s decision to wait until next July to apply a VAT cut for the hospitality sector was taken, in part, because of the “significant cost” of the policy to the exchequer, the Department of Finance has said, amid sharp criticism from the industry.
There is no “sunset clause” attached to the measure, an official spokesman said, meaning the reduced rate is to be a permanent feature of the tax code for the foreseeable future.
In Tuesday’s budget, Minister for Finance Paschal Donohoe confirmed the reduction in the rate from 13.5 per cent to 9 per cent for food service and catering businesses, as well as hairdressers, a measure that was included in the programme for government.
The Fine Gael TD said the cut would come into effect from July 2026, leading to criticism from industry lobbyists, who say it will be too late to save some businesses from closure.
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On Thursday, a Department of Finance spokesman told The Irish Times the decision to wait until July to apply the cut related to “the significant cost involved and the overall budget framework”.
Mr Donohoe said the policy will cost the exchequer €232 million from July to the end of next year, rising to €681 million in 2027, the most expensive tax measure announced in the budget, accounting for more than 17 per cent of the Coalition’s total €1.3 billion tax package.
The almost tripling of the full-year estimated cost from €232 million to €681 million relates to the fact that there are six VAT payment periods in a year, with the November to December period received in the following year, a spokesman for the department clarified.
The €232 million figure accounts for two of the six VAT periods in the year, “so it is really a timing issue, based on how VAT payments are received”, he said.
The estimated €681 million cost in 2027 would be almost €300 million more than the next most expensive tax cut – the VAT cut on apartment sales – that the minister announced on Tuesday.
Unlike the VAT cut on apartment sales, which expires at the end of 2030, there is “no sunset clause” attached to the hospitality VAT cut, the spokesman said.
Economists and think tanks – including the Irish Fiscal Advisory Council (Ifac), the State’s independent budget watchdog – have previously criticised the move against a backdrop of a narrowing underlying Irish tax base when corporation tax receipts are excluded.
The Irish Times also reported on Thursday that some of the biggest beneficiaries of the cut will be large fast-food and catering businesses.
On Wednesday, Minister for Enterprise Peter Burke said he wants the VAT cut to “inject viability” into the hospitality sector and encourage employment growth, rather than trickling down to workers or consumers through higher wages or lower prices.
“We’re trying to put viability into businesses, but it’s up to businesses what price they charge, what profit level they have in their business, and what allows them to grow,” Mr Burke told reporters on the day following the budget. “What I want to see is that we grow jobs in the sector, obviously.”
