No justification for retaining 9% VAT rate for hospitality, officials say

Officials have told the Government there is no longer a justification for the 9 per cent VAT rate for hospitality ahead of crucial talks on the future of the support this week.

Minister for Finance Michael McGrath will on Monday meet with the hospitality industry, and while no decisions have been made on the future of the ultra-low rate there is a growing pessimism about the retention of the rate within the sector.

The final call will be political rather than determined solely by the advice from officials. The stance reinforces the long-standing opposition to the rate in the Department of Finance – where officials believe the credibility of the “emergency measure” is being dented by its ongoing retention. It was reintroduced during Covid, after initially being brought in during the financial crisis.

A Government source said last week it was “looking unlikely at this stage that it’ll be retained” – a belief mirrored by several Coalition sources who spoke privately over the weekend, with expectation building for spending on a spring cost-of-living package.

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Extending the rate to the end of the year would cost €400 million, something one source said on Sunday could “be used on a whole lot of areas”. Nonetheless no final decisions have been made ahead of talks this week.

Initial conversations on the extension of cost-of-living supports due to expire at the end of this month, as well as further payments, will take place between the Coalition leaders on Monday evening, before a Cabinet committee meeting on Thursday, which will thrash out further the package of measures.

Taoiseach Leo Varadkar indicated on Sunday that welfare recipients and pensioners will be in line for a spring bonus but that there will be a “universal” element as well.

“I believe that you need an element of both,” he told RTÉ Radio. “Universal measures to help everyone, but those who are suffering the most are those who need the most help, and one thing we will make a judgment call on this week is some additional welfare payments. We haven’t decided the nature of those, exactly who will get them, who won’t and how much.”

Senior sources cautioned at the weekend that the package of once-off measures would not come near the level announced in the budget. With pressure on to extend expiring tax breaks, extend business supports for energy costs, and introduce a package of both targeted and universal measures, choices will have to be made, they believe.

“The point is you can’t do everything,” one Minister said. “Lots of things are getting put on the table and as costs get greater and greater, the likelihood of retaining tax (breaks) becomes less.”

It is expected that there will be an argument to phase out reduced excise rates on motor fuels rather than allow them to expire – with the Green Party against their outright retention.

Government sources believe reissuing some of the once-off welfare payments used at budget time would be effective as a targeted measure: the fuel allowance and family income supports such as the working family payment will all be examined.

More expensive items, like a double child benefit payment, a “double week” for welfare recipients, and another electricity credit are also due to be discussed. However, there is resistance to the idea of another €200 this side of the next winter heating season.

Industry sources in the hospitality sector are hopeful a staggered approach to the lower VAT rate could be agreed – with it being retained for food and removed for accommodation – but this is seen as logistically challenging by the Government. Minister for Tourism Catherine Martin is expected to back the rearguard action by the sector to retain the benefit in some form.