I see the Government has cut VAT for restaurants – hurrah, does this mean my meal will be cheaper next time I eat out?
You’re right – the VAT rate for food hospitality businesses (and hairdressers) has been reduced from 13.5 per cent to 9 per cent as of this week. And there’s an appealing logic in thinking this should automatically lead to a cheaper bill for you, the customer. But, as with so many tax policy issues, logic can depend on your viewpoint.
What does that mean? Will my bill be lower or not? I was looking forward to finally being able to afford a pre-dinner spicy margarita at the weekend
The most straightforward answer is that it will depend on where you go. In Dublin, for example, long-standing fine-dining restaurant Dax is cutting its prices to coincide with the VAT change, with a two-course lunch falling from €53 to €50 and a four-course dinner from €98 to €94.
Also in the capital, cafe business Lolly and Cooks has said its coffee prices will be lower, while in Westport, Co Mayo, deli/bistro/wine bar Savoir Fare has signalled that it will pass on reductions too.
But this is not a norm being followed by the sector, with most hospitality businesses expected to absorb the VAT cut back into their day-to-day operations as a small benefit to their margins.
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Does that not mean they’re just adding to their profits at my expense?
That presumes they’re making a profit. Tír, a seasonal Irish deli with two Dublin outlets, posted on Instagram on Thursday to explain how the price of one of its sandwiches breaks down and how a lower VAT rate might affect that.
It said an €11.75 sandwich (made with quality, Irish ingredients) generated a 29 cent loss at the 13.5 per cent VAT rate, while it would produce a 14 cent profit at the new rate.
“It’s just breathing room,” said co-owner Shane Kelly of the new rate, emphasising the huge cost pressures facing independent food businesses at the moment.
So will this help consumers at all?
That depends on how you decide to view the policy. The Minister for Enterprise Peter Burke this week described it as “a viability measure to shore up businesses that have been experiencing extraordinary costs”.
Note he did not emphasise the benefit for consumers, even though the Taoiseach Micheál Martin had indicated last year that he would like to see this kind of change “reflected in the pricing”.
To take Burke’s comments to their extension, you might want to look at the cut as a small way to help ensure your favourite restaurant or lunch spot stays in business. Thus, you would welcome it without expecting any personal financial benefit and not judge outlets that don’t reduce prices.
Restaurants Association of Ireland chief executive Adrian Cummins this week told the Inside Business podcast from The Irish Times that deciding whether or not to pass on the cut was “a matter for each business”.
Hmmm. So if I really want to make an informed choice on this, where can I find expert data to help me?
The Irish Fiscal Advisory Council, the State’s very respected independent spending watchdog, took a look at the area last year. It found businesses in the hospitality sector are more likely to pass on VAT increases to consumers, while keeping a higher proportion of VAT reductions.
As an aside, an extrapolation of its calculations suggested that the annual cost to the State of a VAT cut from 13.5 per cent to 9 per cent for food-serving businesses was equivalent to the cost of hiring 8,846 nurses or 6,053 teachers.
The 9 per cent VAT rate has been welcomed by restaurants but does the hospitality sector actually need it?
So now you’re saying I have to choose between a new teacher at my child’s school or a cheaper pizza on Saturday night?
No, we’re not saying that at all – we’re just telling you what the data-led experts concluded. Speaking of experts, Dermot O’Leary, chief economist at Goodbody, does not expect to see many restaurants passing on this latest VAT cut.
“I can’t see anything different this time around,” he said on Thursday. “In the majority of cases, consumers will not feel it.”
O’Leary also points out that while not all businesses in this sector appear to be suffering (think McDonald’s and those restaurants where bookings are full out to 2030), this blanket measure will benefit every single operator.
He notes too that within the “struggling” category, an outlet’s difficulties may have nothing to do with the amount of VAT paid but, in some cases, could be due to deeper issues.
