I propose to take Questions Nos. 29 and 35 together.
With effect from 1 January 2019, services and goods currently applying at the second reduced VAT rate of 9% will increase to 13.5%, with the exception of newspapers and periodicals and sporting facilities. The VAT rate applying to catering and restaurant supplies, tourist accommodation, cinemas, theatres, museums, historic houses, open farms, amusement parks, hairdressing and horses and greyhounds will increase from 9% to 13.5%.
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. The rate was designed to be temporary and the Programme for Partnership Government commitment to maintaining the 9% VAT rate was dependent on prices remaining competitive in the sector.
The recently published economic review of the 9% VAT rate by my Department has shown that there is a decline in competitiveness in the sector and that if the 9% rate were to be increased, this would likely not materially impact demand or employment in the sector. The review further finds that tourism expenditure is more sensitive to income growth and the economic cycle than price changes, which reduces the relevance of the VAT rate applying to the sector. In the context of this analysis, it has been decided to increase the VAT rate to 13.5% for the majority of goods and services currently applying at the 9% rate.
As part of the Budgetary process all views are taken into consideration when deciding on tax policy. With regard to the 9% VAT rate discussions took place with a number of industry representatives who raised the issue of the VAT rate on tourism, including the Irish Hotels Federation, the Irish Tourism Industry Confederation, the Irish Business and Employers Confederation, the Irish Congress of Trade Unions and Social Justice Ireland.