The 9% VAT rate was introduced as part of the Jobs Initiative from July 2011 to December 2013 and was aimed at boosting tourism and the creation of additional jobs in that sector. From Budget 2014 it was decided to retain the 9% rate to support the increased number of jobs, and latterly, due to the weakness in Sterling following Brexit. It was for these reasons that I retained the 9% rate in last year’s Budget.
I made a commitment during last year’s Finance Bill to undertake a comprehensive study of all aspects of the 9% VAT rate, in order to better inform any decision in relation to the reduced rate going forward.
The “Review of the 9% VAT rate: Analysis of Economic and Sectoral Developments” was published by my Department in July 2018. In addition to assessing the relevance, cost, value-for-money, impact to date of the 9% VAT rate, the Review also looks at the estimated impact on the relevant sectors were the rate to be increased.
The Review found that tourism expenditure is more sensitive to income growth and the economic cycle than price changes. The economy is currently performing well, with high levels of employment and strong demand in the tourism sector. Growth is also expected to continue in the medium term. This positive economic outlook means that the income channel of demand is likely to ensure that economic activity within the 9% rate sector remains strong. The Review concludes that the VAT rating applied to the tourism sector should not greatly impact demand or employment in the sector. The Budget decision to increase the VAT rate was made following this analysis.
With regard to the expected increase in Exchequer revenues in 2019 as a result of the Budget change, this is estimated to be €466 million. The VAT rate increase in tourist accommodation is expected to yield €235m in 2019, restaurants are expected to yield €191m, hairdressing is estimated to yield €27m in 2019, bloodstock sales is expected to yield €7m and cinemas and shows is estimated to yield €6m in 2019.