The second reduced 9% VAT rate was introduced on a temporary basis 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. The rate was designed to be temporary, but was maintained in subsequent budgets. In 2016, in A Programme for a Partnership Government, we committed to maintaining the 9% VAT rate. I decided in budget 2018 not to make any change to the 9% VAT rate. However, I accepted that the rate must be subject to analysis. In this context, I asked my Department to undertake a comprehensive study of all aspects of the 9% VAT rate ahead of budget 2019.
The review in question was published by my Department in July 2018, in order to better inform my decision-making.
The review found that tourism expenditure was 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. This positive economic outlook means that the income channel of demand is likely to ensure that economic activity within the sector remains strong.
Furthermore, the Revenue Commissioners published a report on the 9% VAT rate in June 2018 which analyses the output and employment impact of the 9% VAT rate using Revenue data. The analysis found an estimated increase in employment of, on average, 1.8 employees for each firm benefiting from the reduced rate. However, beyond the short term, they were unable to distinguish the impact of the rate on employment from the impact of other factors in the economy.
Given the impact of an increase in the VAT rate on the hospitality sector has only recently been reviewed, there does not seem to currently be a case for reviewing the impact of the increase. I will continue to engage with any sectors of our economy and Members of the Oireachtas on issues about which they have a concern.