Noonan says tourism VAT rate costly to retain

Retaining the 9 per cent VAT rate for tourism-related goods and services would be very costly and require an increase in taxation or a reduction in expenditure, Minister for Finance Michael Noonan has said.

“Any proposal to maintain the 9 per cent VAT rate will be considered in the context of the budget,’’ he added.

Mr Noonan said the reduced rate had been introduced in July 2011 as part of the Government's jobs initiative. It was designed to boost tourism and create additional jobs in the sector. The rate was introduced as a temporary measure and was due to expire at the end of December, reverting to 13.5 per cent.

Overseas travellers

Mr Noonan said the most recent CSO data for 2012 showed there was a year-on-year growth in gross value added for the accommodation and food services sector.

Expenditure by overseas travellers to Ireland recorded an increase 0.6 per cent last year compared to the previous year. Also, the first quarter of this year recorded an increase in expenditure of 12 per cent compared with the same period last year, he said.

Impact on employment

Mr Noonan said there was a clear impact on employment in the accommodation and food services sector, which increased by more than 13 per cent between the second quarter of 2011 and the same time this year, representing an increase of 15,000 jobs.

In the period May to July this year, the number of trips to Ireland increased by 7.6 per cent compared to the same period last year. In the period January to July, the number of trips grew by 6 per cent.

Fianna Fáil finance spokesman Michael McGrath said the lower VAT rate cost about €350 million annually.

Mr Noonan added: “We must measure whether the industry can now go without special measures and pay the VAT rate which applies to that sector.’’