James Browne
Question:142. Deputy James Browne asked the Minister for Finance the position regarding the VAT increase and its expected negative impact on small businesses here; and if he will make a statement on the matter. [50224/18]
View answerTuesday, 4 December 2018
Questions (142)
Written answers
The 9% VAT rate was introduced as a temporary measure in Finance (No. 2) Act 2011, to cease at the end of 2013. This period was subsequently extended but during last year’s Finance Bill a commitment was given to undertake a review of the 9% VAT rate. This review was published in July 2018 and the Budget decision to increase the VAT rate was made following that analysis, which indicated that the majority of activity at the 9% VAT rate is driven by income growth more than price and that the retention of the rate provides little additional benefit relative to its cost.
The Review of the 9% VAT rate found that tourism expenditure is more sensitive to income growth and the economic cycle than to 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 sectors to which the 9% VAT rate applies remains strong.
In this context, it is believed that the VAT rating applied to the tourism sector should not greatly impact demand, or employment, in the sector.