Financial Resolution No. 3 - Value Added Tax: Motion

I move:

(1) THAT the rate of value-added tax on the supply of certain goods and services at present chargeable at the rate of 13.5 per cent be decreased to 9 per cent of the amount on which tax is chargeable in relation to the supply of certain goods and services from 1 November 2020 to 31 December 2021 and that accordingly, subsection (1)(ca) of section 46 of the Value-Added Tax Consolidation Act 2010 (No. 31 of 2010) be amended to extend the application of the rate of 9 per cent to goods or services of a kind specified in paragraphs 3(1) to (3), 7(b) to (e), 8, 11 and 13(3) of Schedule 3 to that Act.

(2) THAT this Resolution shall have effect on and from 1 November 2020.

(3) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).

Financial Resolution No. 3 provides that certain goods and services that are currently liable to VAT at 13.5% will be subject to a VAT rate of 9% from 1 November 2020 until 31 December 2021. This will mainly affect the supply of restaurants and catering services, guest and holiday accommodation and various entertainment services such as admissions to cinemas, theatres, museums, fairgrounds and amusement parks.

VAT at 9% will also apply to hairdressing and certain printed matter such as brochures, maps, programmes and magazines. Newspapers and sporting facilities that were already at 9% will be maintained at that level.

The total cost of this measure is estimated to be €401 million for the 14 months it is to be introduced. It is estimated that it will cost €336 million in 2021, with a further €65 million in 2022. The measure is being introduced in the context of the unprecedented challenges facing this sector, within which many businesses remain closed for now, and those that are open are operating at significantly reduced capacity.

The reduced rate is provided for until December 2021 to support businesses throughout 2021 when, hopefully, our economy and our society can start to return to some form of normality.

Obviously we need to support businesses during this difficult period but there are problems with this approach. I am not going to vote against this resolution but the Government could have provided supports in a more targeted way. The first point is that the employment in the sectors affected by this VAT change tends to be of very poor quality. I repeat the point we made during the last period of a reduced VAT rate that if a benefit like this is to be given to this sector, it should be contingent on improving the working conditions of staff. People working in the hospitality sector are among the poorest paid and have the most precarious type of employment with the lowest level of protections and it would be fair enough to make this VAT reduction contingent on improving both pay and conditions.

The second point is that there are more effective ways of supporting this sector. If the businesses involved are not generating turnover, then a reduction in VAT is not much good to them. It probably would have been better to introduce some kind of voucher system to encourage all of us to spend more in this sector, thus generating business and improving the lot of the industry rather than reducing VAT on a very low level of activity. That would have been a better way. There are lots of people whose incomes have not been impacted and who need to be encouraged to spend more in areas like this.

There are questions as to how targeted this approach is and what businesses are included. It has been confirmed this evening that hairdressers are included but it is not clear whether spas and beauty salons are covered. The Minister should provide clarity on that point. Overall, this is a very blunt instrument. I do not see why periodicals and magazines would get the benefit of a VAT reduction. It would have been possible to introduce a more targeted and more effective measure to help this sector. It is also important that workers in this sector are given some protection.

This particular measure to reduce the VAT rate on the hospitality sector to 9% was a measure that former Deputy Michael Noonan and I introduced to deal with the last economic crisis that we were facing but that was a different crisis. We were trying to encourage people into restaurants and so on but we now have a public health policy that prevents that. In that context, it is debatable how impactful this will be in the short term and it is quite an expensive mechanism, at €401 million. I agree that conditionality is required here. My colleague, Deputy Nash, reintroduced legislation underpinning sectoral employment orders to ensure decent standards for those working in this very vulnerable sector who are among the lowest-paid in the country. It should be a condition of receipt of this level of support that employers are required to engage with the trade union movement and that a standard minimum wage be agreed for the sector. I hope these issues will be taken into account when this particular benefit is given.

I hope this measure works but if people are not going into these businesses because of the restrictions, it will be fairly difficult to pinpoint the figure involved. I support the measure but have a specific question on it. Hairdressers are included but it is my understanding that if a hairdresser and a beauty salon are operating on one premises, the VAT rate for one service will be 9% and 13.5% for the other. I ask the Minister to clarify that because there is a question mark over it.

On behalf of restaurants, tourist accommodation, cinemas, theatres, museums, historic houses, open farms, amusement parks, hairdressers and producers of certain printed matter, I welcome this measure even though it is too little, too late. Since the VAT rate was increased from 9% to 13.5%, I, on behalf of those who have lobbied me, together with other Deputies have been continuously seeking to have it reduced. It is ironic that it is now being reduced at a time when the majority of these fine businesses have their doors closed. The Government could have gone further but having said that, I welcome the fact that it recognises the crisis in this sector and acknowledges the need for this support. This reduction has been sought by the vintners, the Irish Hotels Federation and all of those involved in the hospitality sector. However, the Government must start listening to the lobby groups that lobbied for this cut in the past and must be more proactive rather than reactive.

We are closing the stable door after the horse has bolted. I acknowledged the value of the original VAT cut when it was introduced by the then Ministers, Michael Noonan and Deputy Howlin, but when the rate was increased again it should only have been increased by 1% or 2% rather than going all the way back up to 13.5%. This resolution is giving a VAT reduction to businesses that are closed. They have been forced to close by the State. It is obviously a panicked, knee-jerk reaction but it should have been done six months ago. The rate should have been reduced to 5% as it was throughout Europe. That would have helped businesses to get up off their knees and get their doors open again. We are playing Tweedledum and Tweedledee and are playing mind games with businesses. How are businesses to reclaim the VAT now? I also hope that beauty salons will be treated the same as hairdressers, as well as the plethora of other service industries involved in weddings and so forth including hotels, musicians and so on. This is too little, too late and the rate should be dropped to 5%.

I spoke about this in my earlier contribution on the budget. I come from the constituency of Cork South-West, where tourism is of the utmost importance, providing 270,000 jobs. Seven or eight months ago, when Covid-19 first struck, I called for a reduction in VAT for the tourism sector to 0%. I got support from other politicians in Cork, some of whom argued it should be reduced to 5%. Now it is being reduced to 9% when every business is closed. These businesses were fighting for their very survival during the summer and this measure would have been of great help. It would have provided a cushion or support to them in trying to get through what was a shocking tourist season. I know of businesses from Kinsale all the way up to Crookhaven and Goleen that are in deep trouble. Jobs have been lost and doors are shut. While the €55 million boost for the tourism sector is to be welcomed and I will not be voting against this resolution, I am very frustrated. The rate should have been reduced to 5% months ago which could have saved a lot of businesses.

It is fair to say that the hospitality sector has faced an economic tsunami. Everything and anything that can be done to support bars, restaurants and hotels should be done. Obviously I support this VAT reduction which we called for in our alternative July stimulus and our alternative budget. The Government went for what can only be described as a discredited stay and spend initiative, which unfortunately has not worked. It also cut the 23% rate, which has not been enough for the hospitality sector. The Government also cut the wage subsidy scheme, especially for low-paid workers, many of whom are in the hospitality sector. It has not done enough in terms of providing direct grants towards the fixed costs associated with hotels, bars and restaurants. The tsunami facing the sector is very serious and the situation will remain the same for some time to come because of the restrictions.

I represent a party with 37 Deputies. I know that the Leas-Cheann Comhairle wants to allow as many speakers as possible to contribute but we had three or four speakers from a group with only six Deputies so if I could finish-----

I cannot stop the Deputy but am just asking for his co-operation because there are two more speakers indicating.

I understand that but we had four speakers from a group of six and I am representing a party of 37. I will finish by saying that much more needs to be done for the hotel and hospitality sector. We all know, including those in government, that the sector has been very badly hit and we must go much further than this VAT cut, which will not be enough.

I very much welcome this reduction in the VAT rate, which is critical to the entire hospitality sector at this time. Contrary to what some speakers have said, this is very important for those operators, particularly as they plan for 2021. Amidst so much uncertainty, that certainty in regard to the VAT rate is important and is appreciated by a huge number of people who have been in contact with me this evening to express their gratitude to the Government for this measure.

I remind the House that those of us who supported this measure back in 2011, when it was initially introduced as a short-term measure although it ended up being there for seven years, saw at first hand what a huge impact it had in terms of restarting and giving a great stimulus to Irish tourism at that time. At this time and in the time ahead, this measure is very important. I call on every Member of the House to support it and to see it exactly for what it is, which is a huge boost to Irish tourism and to all the operators who are struggling at the moment. It will not solve all of the problems, but it is certainly a key factor contributing to the recovery that will come for Irish tourism. It is one measure among many that have been put in place by the Government that will help operators the length and breadth of this country, urban and rural, to get back on their feet again and to make Irish tourism a success into the future.

I welcome the introduction of the reduction in VAT. Coming from a Border area that has been struggling for a long time with Brexit and the coronavirus, I hope the Government will also consider the issue of the general rate of VAT. With regard to manufacturing and industry, I have been speaking to many retailers in Dundalk who are competing against Northern businesses and they believe it is very important that we look at the general rate of VAT. There are manufacturers and shops in Dundalk for which the full rate of VAT makes everything very expensive. It is very important that we all get our shoulder to the wheel and help one another. This measure was badly needed and the hospitality sector will really appreciate it. Nonetheless, I ask the Government to also consider reducing the general rate by 2% or 3% for the next 12 to 18 months to give retailers an opportunity to compete with everybody else.

Financial Resolution No. 3 agreed to.

I understand we are dealing with Financial Resolutions Nos. 4 to 6, inclusive, together.