Dáil Éireann Debate, Tuesday - 28 February 2023
227. Deputy Pearse Doherty asked the Minister for Finance if an economic impact assessment was undertaken with respect to the extension of the 9% VAT rate for the hospitality and tourism sectors; if he will detail its findings, and if he will publish the assessment. [10007/23]
Amharc ar fhreagraIn January of this year, officials from my Department compiled a ministerial briefing on the temporary 9 per cent VAT rate, which included an economic assessment of the measure.
The material outlined the macroeconomic backdrop to any extension of the 9 per cent rate, noting that the economy has rebounded strongly from the pandemic and that economic activity is now above pre-pandemic levels.
The briefing also contained an analysis of employment trends, reporting that employment in the sectors covered by the 9 per cent rate was near pre-pandemic levels last year. While job vacancies in the 9 per cent sectors were lower than the economy overall, they are still higher than the long-term average. Economy-wide employment could be classified as what economists term full-employment.
In addition, the briefing noted that the reduced rate is both regressive and very costly, and that this cost represents a transfer from taxpayers to the sectors which it covers.
The Government accepted the Department’s economic assessment, which found that there was no longer an economic case for the temporary 9 per cent rate, and, therefore, decided upon a reversion to the 13.5 per cent VAT rate. Specifically, the Government decided that the 9 per cent VAT rate for the tourism and hospitality sectors will only apply until 31 August 2023. This decision was made in recognition of the employment provided in the sectors to which the 9 per cent rate applies, as well as to give businesses a transition period to adapt to the changing economic and policy environment. Finally, the Government was cognisant of avoiding adding to upward pressure on prices while inflation remains so elevated.
This extension, therefore, strikes a balance between the estimated €300 million cost to the public finances and the provision of support for these sectors through the busy summer period, after which the reduced rate will cease.
