The 9% reduced VAT rate for tourism related services was introduced in July 2011 as part of the Government Jobs Initiative. The measure was designed to boost tourism and create additional jobs in that sector. The measure was estimated to cost €120 million in 2011, €350 million in 2012, €350 million in 2013, and €60 million in 2014. As the rate was introduced for a defined period, failure to revert the 9% rate to 13.5% would give rise to an annual Budget shortfall of €350m from 2014. With regard to the economic impact on the tourism sector due to the introduction of the 9% VAT rate, the most recent data available from the CSO of economic growth broken down by sector relates to the year 2009 so I am unable to provide analysis in relation to 2011. Expenditure by overseas travellers to Ireland recorded an increase of 0.6% in 2012 compared with 2011. In addition, Q1 2013 recorded an increase in expenditure of 12% compared with the same period last year. There is a clear impact in terms of employment in the accommodation and food service sector which has increased by over 13% between the period Q2 2011 to Q2 2013 – an increase of 15,000 jobs in the sector. In terms of numbers of trips to Ireland, for the period May to July, the number of trips increased by 7.6% on the same period last year, while for the period January to July, the number of trips to Ireland increased by 6.0%.
In line with best international practice the 9% VAT rate was introduced as a temporary measure and is due to expire at end December 2013, at which point it will revert to 13.5%. Retaining the 9% rate would be very costly to the Exchequer and would require an increase in taxation or reduction in expenditure elsewhere. Any proposal to maintain the 9% VAT rate will be considered in the context of the Budget.
