Support from readers like you keeps The Journal open.
You are visiting us because we have something you value. Independent, unbiased news that tells the truth. Advertising revenue goes some way to support our mission, but this year it has not been enough.
If you've seen value in our reporting, please contribute what you can, so we can continue to produce accurate and meaningful journalism. For everyone who needs it.
AS NATIONS RISE and all as day turns to night and night to day, only one thing on this earth can be set in stone, certain to endure for eons.
The debate about the special VAT rate for Ireland’s hospitality sector will never die.
You see, it’s been reported as pretty much a done deal that the government plans to give the sector a major tax cut.
In the next budget, VAT for food-led businesses, including restaurants and cafes, is set to be dropped from 13.5% to 9%. It will mark the fourth time in slightly over a decade that the industry’s VAT rate has been changed.
When hotels were included in the VAT cut, it cost about €700ma year. With the measure now expected to only apply to food-led businesses, it will cost the state about €545m a year in foregone tax revenue. That’s still a pretty massive chunk of change.
The tax break will basically function as a direct subsidy for businesses, which are mostly in agreement that the extra cash will go directly towards their bottom line.
So what has convinced the government to forego such a huge source of public funds?
Well, many politicians – such as Enterprise Minister Peter Burke – seem to have been swayed by loud cries from lobbyists that the restaurant industry is on its knees, with the VAT break needed to avoid catastrophic closure rates in the sector.
But when we actually take a look through some figures, the case doesn’t seem as clear. And it looks like the government might be throwing €500m of taxpayer funds per year away based on relatively sparse evidence.
How we got here
But let’s go back a bit. Where did this whole debate over the hospitality VAT rate start?
We covered this in detail in another article. But as a brief summary – up through the 2000s, a VAT rate of 13.5% applied to hospitality businesses, such as hotels, restaurants and cafes.
But then the Irish economy did an oopsie during the financial crisis. With a collapse in consumer spending, the government decided to cut the hospitality’s VAT rate to 9% as a way to stimulate lower prices and get people spending again after the crash.
It works like this: say a meal in a restaurant costs €100 without VAT. With the rate at 13.5%, the final price the customer pays will be €100 + 13.5% = €113.5. Scenario one.
With the rate at 9%, the price could be €100 + 9% = so €109. Scenario two.
Or, businesses could keep the price at €113.5, and pocket the extra €4.50.
The government rowed back on the measure when they became worried that, while scenario one was the aim, scenario two was more common in practice.
So the rate went back to 13.5% in 2019.
But then the world did an oopsie with Covid, and back came the 9% rate. This time, scenario two was the aim, as the government explicitly wanted to give cash to an industry devastated by pandemic measures and closure orders. Most people would agree this made sense.
Advertisement
In Budget 2023 – announced in October 2022 – the rate was restored to 13.5%, as the economy was doing much better and the government wanted the foregone tax revenue back.
But now, the rate will go back to 9%, despite the economy being in a strong place and with record low unemployment.
So, what gives?
Basically, in the last year or so a narrative has taken hold that the hospitality sector – mostly restaurants – is in crisis.
Is there a crisis?
A quick search for ‘Irish restaurant closures’ brings up a slew of stories, most based on data from the Restaurants Association of Ireland [RAI], which says approximately 600 hospitality firms have closed in the last year or so.
Rising costs are blamed. Some of these are mostly out of the government’s control, such as an increase in the price of fuel.
But some are up to the state, such as the rising minimum wage. There have also been other costs over the last year or so, like improved paid sick leave for workers.
The likes of the RAI and other groups have said these state-controlled cost increases have cut into their margins to the point where many otherwise viable businesses are now going under. So, as the state is pushing these firms to the brink, it should give them a break in the form of the reduced VAT rate.
It’s a compelling argument. The problem is – there isn’t much evidence for it.
Let’s look a bit closer at the RAI’s figure of 600 restaurant closures a year. Most articles based on the crisis in hospitality have this statistic front and centre.
But looking at closures only tells half the story. If you’re a minister being asked to effectively spend €500m a year because 600 restaurants are closing, your first question should be: ‘Well, how many are opening?’
Because if the number of openings is above closures, then the number of businesses shutting down could be viewed as the normal churn in any industry.
It’s worth pointing out that the RAI doesn’t track restaurant openings at all.
Asked by The Journal why not, CEO Adrian Cummins said: “It’s a fair point.”
“The Department of Enterprise did that exercise and it showed there were potentially more openings, but it was a paper exercise and we would take issue with it. [But] I would acknowledge we don’t have all the data.”
The closest insight we have on openings comes from the Central Statistics Office, which found that in 2022, the most recent year that figures are available, 1,425 new businesses were started in the ‘Accommodation & Food’ sector. This was the third-most of any industry.
Now, there are some issues with these figures as well. One, the figures are over two years old. Two, there were still Covid supports knocking around in early 2022. Three, ‘Accommodation & Food’ covers hotels as well as restaurants.
But still, it is an indication that there could be a decent number of new food businesses starting up to replace others shutting down.
Sticking with the subject of closures, there’s also conflicting data around how many restaurants and cafes are really going out of business.
For example, while the RAI said about 600 food businesses shut over the last year, figures published by accountancy firm PwC found that there were 110 hospitality insolvencies in the nine months to September 2024.
Related Reads
When did we forget that Ireland’s special hospitality VAT rate was meant to reduce prices?
'In crisis': Hospitality sector 'gravely concerned' at decision to keep VAT at 13.5%
Cutting VAT on hospitality 'unjustified' and too expensive, says Department of Finance
Although some of the businesses counted by the RAI are likely sole traders who wouldn’t have created a corporate entity – and therefore wouldn’t show up in insolvency stats – it’s still a pretty big gap which clashes with the narrative of catastrophic numbers of restaurants shutting.
Figures which also don’t line up with the mass closures narrative are the employment stats published by the CSO, which show employment in the ‘Accommodation & Food Service’ sector is up by 9% over the year to September 2024.
This also isn’t just growth coming from a low base. There are currently 200,000 people employed in the ‘Accommodation & Food’ sector. This is compared to 178,800 as of September 2019 – that’s pre-Covid, when the industry was widely considered to be in decent shape.
Compare with Covid
To see what a crisis looks like, Covid saw an actual drop in employment. That 178,800 employed in ‘Accommodation & Food’ in 2019 plunged 139,000 as of September 2020. Clearly a crisis.
By comparison, the 200,000 currently employed in the sector is up from 183,000 in September 2023.
While it’s again worth recognising that other businesses such as hotels are also counted in the ‘Accommodation & Food’ category, the numbers don’t quite point towards an apocalyptic business landscape for restaurants and cafes.
This is a view which is also supported by the Department of Finance, which is staunchly opposed to the hospitality VAT cut, saying “the evidence does not support” the case for the reduction.
Now, all this isn’t to say that the restaurant sector isn’t facing issues.
It’s an industry which operates on thin margins at the best of times, and recent cost increases such as the minimum wage will of course have had an impact.
But the evidence that these are causing widespread closures seems murky at best.
If the government is minded to drop €545m with the explicit purpose of boosting the profits of private businesses, it could probably do with making sure in advance that it’s really needed.
We need more information
Especially – and this really can’t be stated enough – this €545m in foregone revenue is an annual commitment, not a one-off.
Half a billion less every year for the foreseeable future, when Ireland has a narrow tax base and is relying heavily on corporate tax windalls to avoid running deficits – money which could go as quickly as it came.
While no one likes lining the pockets of consultants, it would perhaps be worth spending some money on a proper report investigating Irish restaurant profitability and closures. To see if there is a crisis, and more importantly, to see if cutting the VAT rate will actually fix it.
Better to spend €500,000 on some consultants’ reports now, than €545m on the lowered VAT rate, only to find out later that it was never needed.
Because as things stand, we’re not really sure the restaurant sector has a problem in the first place.
And even if there is one, we can’t be sure if a VAT cut would be a panacea.
But hey, it’s only €545m of taxpayer’s money. Who needs fancy things like ‘evidence’ when it comes to spending it.
Readers like you are keeping these stories free for everyone...
A mix of advertising and supporting contributions helps keep paywalls away from valuable information like this article.
Over 5,000 readers like you have already stepped up and support us with a monthly payment or a once-off donation.
To embed this post, copy the code below on your site
Close
91 Comments
This is YOUR comments community. Stay civil, stay constructive, stay on topic.
Please familiarise yourself with our comments policy
here
before taking part.
'No-one wants to talk here': The silence surrounding the killing of Claire Collins
Niall O'Connor
3 hrs ago
3.4k
The Morning Lead
Parents should ban children from using smartphones alone in their bedrom, minister says
Jane Matthews
3 hrs ago
2.4k
34
trade war
China slaps extra 34% tariffs on US imports as Trump vows his 'policies will never change'
Updated
10 hrs ago
59.1k
174
Your Cookies. Your Choice.
Cookies help provide our news service while also enabling the advertising needed to fund this work.
We categorise cookies as Necessary, Performance (used to analyse the site performance) and Targeting (used to target advertising which helps us keep this service free).
We and our 164 partners store and access personal data, like browsing data or unique identifiers, on your device. Selecting Accept All enables tracking technologies to support the purposes shown under we and our partners process data to provide. If trackers are disabled, some content and ads you see may not be as relevant to you. You can resurface this menu to change your choices or withdraw consent at any time by clicking the Cookie Preferences link on the bottom of the webpage .Your choices will have effect within our Website. For more details, refer to our Privacy Policy.
We and our vendors process data for the following purposes:
Use precise geolocation data. Actively scan device characteristics for identification. Store and/or access information on a device. Personalised advertising and content, advertising and content measurement, audience research and services development.
Cookies Preference Centre
We process your data to deliver content or advertisements and measure the delivery of such content or advertisements to extract insights about our website. We share this information with our partners on the basis of consent. You may exercise your right to consent, based on a specific purpose below or at a partner level in the link under each purpose. Some vendors may process your data based on their legitimate interests, which does not require your consent. You cannot object to tracking technologies placed to ensure security, prevent fraud, fix errors, or deliver and present advertising and content, and precise geolocation data and active scanning of device characteristics for identification may be used to support this purpose. This exception does not apply to targeted advertising. These choices will be signaled to our vendors participating in the Transparency and Consent Framework.
Manage Consent Preferences
Necessary Cookies
Always Active
These cookies are necessary for the website to function and cannot be switched off in our systems. They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms. You can set your browser to block or alert you about these cookies, but some parts of the site will not then work.
Targeting Cookies
These cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.
Functional Cookies
These cookies enable the website to provide enhanced functionality and personalisation. They may be set by us or by third party providers whose services we have added to our pages. If you do not allow these cookies then these services may not function properly.
Performance Cookies
These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors move around the site. All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies we will not be able to monitor our performance.
Store and/or access information on a device 111 partners can use this purpose
Cookies, device or similar online identifiers (e.g. login-based identifiers, randomly assigned identifiers, network based identifiers) together with other information (e.g. browser type and information, language, screen size, supported technologies etc.) can be stored or read on your device to recognise it each time it connects to an app or to a website, for one or several of the purposes presented here.
Personalised advertising and content, advertising and content measurement, audience research and services development 146 partners can use this purpose
Use limited data to select advertising 116 partners can use this purpose
Advertising presented to you on this service can be based on limited data, such as the website or app you are using, your non-precise location, your device type or which content you are (or have been) interacting with (for example, to limit the number of times an ad is presented to you).
Create profiles for personalised advertising 85 partners can use this purpose
Information about your activity on this service (such as forms you submit, content you look at) can be stored and combined with other information about you (for example, information from your previous activity on this service and other websites or apps) or similar users. This is then used to build or improve a profile about you (that might include possible interests and personal aspects). Your profile can be used (also later) to present advertising that appears more relevant based on your possible interests by this and other entities.
Use profiles to select personalised advertising 85 partners can use this purpose
Advertising presented to you on this service can be based on your advertising profiles, which can reflect your activity on this service or other websites or apps (like the forms you submit, content you look at), possible interests and personal aspects.
Create profiles to personalise content 39 partners can use this purpose
Information about your activity on this service (for instance, forms you submit, non-advertising content you look at) can be stored and combined with other information about you (such as your previous activity on this service or other websites or apps) or similar users. This is then used to build or improve a profile about you (which might for example include possible interests and personal aspects). Your profile can be used (also later) to present content that appears more relevant based on your possible interests, such as by adapting the order in which content is shown to you, so that it is even easier for you to find content that matches your interests.
Use profiles to select personalised content 35 partners can use this purpose
Content presented to you on this service can be based on your content personalisation profiles, which can reflect your activity on this or other services (for instance, the forms you submit, content you look at), possible interests and personal aspects. This can for example be used to adapt the order in which content is shown to you, so that it is even easier for you to find (non-advertising) content that matches your interests.
Measure advertising performance 136 partners can use this purpose
Information regarding which advertising is presented to you and how you interact with it can be used to determine how well an advert has worked for you or other users and whether the goals of the advertising were reached. For instance, whether you saw an ad, whether you clicked on it, whether it led you to buy a product or visit a website, etc. This is very helpful to understand the relevance of advertising campaigns.
Measure content performance 61 partners can use this purpose
Information regarding which content is presented to you and how you interact with it can be used to determine whether the (non-advertising) content e.g. reached its intended audience and matched your interests. For instance, whether you read an article, watch a video, listen to a podcast or look at a product description, how long you spent on this service and the web pages you visit etc. This is very helpful to understand the relevance of (non-advertising) content that is shown to you.
Understand audiences through statistics or combinations of data from different sources 76 partners can use this purpose
Reports can be generated based on the combination of data sets (like user profiles, statistics, market research, analytics data) regarding your interactions and those of other users with advertising or (non-advertising) content to identify common characteristics (for instance, to determine which target audiences are more receptive to an ad campaign or to certain contents).
Develop and improve services 84 partners can use this purpose
Information about your activity on this service, such as your interaction with ads or content, can be very helpful to improve products and services and to build new products and services based on user interactions, the type of audience, etc. This specific purpose does not include the development or improvement of user profiles and identifiers.
Use limited data to select content 37 partners can use this purpose
Content presented to you on this service can be based on limited data, such as the website or app you are using, your non-precise location, your device type, or which content you are (or have been) interacting with (for example, to limit the number of times a video or an article is presented to you).
Use precise geolocation data 47 partners can use this special feature
With your acceptance, your precise location (within a radius of less than 500 metres) may be used in support of the purposes explained in this notice.
Actively scan device characteristics for identification 27 partners can use this special feature
With your acceptance, certain characteristics specific to your device might be requested and used to distinguish it from other devices (such as the installed fonts or plugins, the resolution of your screen) in support of the purposes explained in this notice.
Ensure security, prevent and detect fraud, and fix errors 93 partners can use this special purpose
Always Active
Your data can be used to monitor for and prevent unusual and possibly fraudulent activity (for example, regarding advertising, ad clicks by bots), and ensure systems and processes work properly and securely. It can also be used to correct any problems you, the publisher or the advertiser may encounter in the delivery of content and ads and in your interaction with them.
Deliver and present advertising and content 100 partners can use this special purpose
Always Active
Certain information (like an IP address or device capabilities) is used to ensure the technical compatibility of the content or advertising, and to facilitate the transmission of the content or ad to your device.
Match and combine data from other data sources 73 partners can use this feature
Always Active
Information about your activity on this service may be matched and combined with other information relating to you and originating from various sources (for instance your activity on a separate online service, your use of a loyalty card in-store, or your answers to a survey), in support of the purposes explained in this notice.
Link different devices 55 partners can use this feature
Always Active
In support of the purposes explained in this notice, your device might be considered as likely linked to other devices that belong to you or your household (for instance because you are logged in to the same service on both your phone and your computer, or because you may use the same Internet connection on both devices).
Identify devices based on information transmitted automatically 91 partners can use this feature
Always Active
Your device might be distinguished from other devices based on information it automatically sends when accessing the Internet (for instance, the IP address of your Internet connection or the type of browser you are using) in support of the purposes exposed in this notice.
Save and communicate privacy choices 69 partners can use this special purpose
Always Active
The choices you make regarding the purposes and entities listed in this notice are saved and made available to those entities in the form of digital signals (such as a string of characters). This is necessary in order to enable both this service and those entities to respect such choices.
have your say