Dáil Éireann Debate, Tuesday - 1 October 2013
214. Deputy Eoghan Murphy asked the Minister for Finance if calculations of the cost of the 9% VAT reduction to the Exchequer at circa €350 million each year takes into account increased activity in the relevant sectors and the financial benefit to the economy in that same year, including not just money spent in these areas but revenue generated and also jobs created and the Exchequer benefit of this. [41086/13]
View answerThe 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. The cost of the VAT reduction was offset by the 0.6% levy on pension fund, a measure which is due to expire next year. As the rate was introduced as a temporary, targeted measure, failure to revert the 9% rate to 13.5% would give rise to a significant annual Budget shortfall that would have to be found elsewhere.
After a sharp fall in activity in the years to 2011, some of the sectors impacted by the reduced VAT measure have experienced growth in employment. This is down to a number of factors, including the overall stabilisation in domestic demand over the period. The attractiveness of Ireland as a tourist destination has also been positively impacted by the improvement in price competitiveness due to inflation at or below the euro area average for the last five and a half years. It should be stressed that all factors, including the economic impact and the cost of the measure, are taken into consideration when analysing possible tax changes. Any proposal to maintain reduce the VAT rate from the 13.5% rate will be considered in the context of the Budget.
