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A CROSS-PARTY ROW has started over election proposals to slash the 13.5% VAT rate for restaurant owners which has been at the centre of an ongoing crisis.
The food and hospitality sector has long-called for the 9% VAT rate – which was present during the Covid-19 pandemic – to be reinstated as they claim operating costs for produce, wages and energy bills have risen with inflation in recent years.
A spate of recent restaurant closures – some of which had high-profile owners or were popular with locals – led unions representing small and medium enterprises to protest last month, calling for the VAT rate to be slashed.
Fine Gael today announced its business policy plan which included an intention to slash the VAT rate to 11% for all firms in the food, hospitality, entertainment and hairdressing sector. Hotels would miss out on the reduction.
The promise makes up part of a €800 million support package on offered by the party, which would include a retail crime strategy, SME test schemes and a promise to deliver 300,000 new jobs while attracting more foreign direct investment.
Taoiseach Simon Harris promised that the supports would be felt by businesses within the first 100 days of a Fine Gael government.
Fine Gael’s plan was immediately undercut today by the Social Democrats, proposing that the food and accommodation hospitality sector must be split and that a 9% VAT rate be applied for restaurants.
Leader Holly Cairns said this proposal would make for a more targeted scheme for SMEs, such as small cafés, but added that it would be an emergency measure.
Tánaiste Micheál Martin, who was out canvassing in Douglas, County Cork today, said that while he is in favour of VAT reform, lowering the rate to 11% could inadvertently trigger higher VAT rates on energy, which he said would only drive up costs for Irish householders through higher gas and electricity prices.
However, he said he was not ruling anything out as it will provide a 300 million euro support fund for businesses and a 1.5% reduction in the PRSI for employers who have staff on the minimum wage.
Speaking on RTÉ Radio One’s Saturday with Colm Ó Mongáin programme, Finance minister and Fianna Fáil Dublin West candidate Jack Chambers said that any slash to the VAT rate would increase bills.
Chambers explained a VAT reduction to 11% had been considered during budget negotiations this year but it was found that rates on gas and electricity bills would increase to 11% as a result.
He said his party will be committing to a five-year freeze on VAT rates for bills at 9% for food businesses instead, which he claimed would take a significant burden away from owners. He added that it would be funding within the overall fiscal framework.
Chambers said:
“We could not do that if we implemented the Fine Gael proposal of an 11% rate, because essentially, Fine Gael want to increase the vast rate and gas and electricity in their proposal.”
Sinn Féin TD for Donegal and party spokesperson for finance Pearse Doherty challenged Fianna Fáil’s plan, claiming that Fianna Fáil had legislated in the latest finance bill to increase the rate by 3.5%.
Fine Gael’s plan to increase VAT rates to 11% would also increase rates on to gyms, swimming pools and leisure centres which, in turn, would increase membership costs.
A party spokesperson told The Journal that a €50 tax credit would offset the effect for members. Chambers today that increasing tax on gym membership is “completely regressive” and that Fine Gael’s proposal is a “serious mistake”.
He claimed the tax would impact young people and many people who value their gym membership.
Sinn Féin leader Mary Lou McDonald, speaking to reporters in Waterford, echoed these concerns.
She claimed that the 11% rate would have “an adverse consequence” for those who currently have a 9% rate, such as newspapers, gyms and “bouncy castle hirings – it may be niche, but it matters”.
“This is nonsense, to be honest. I think it’s policy making on the back of an envelope.”
McDonald highlighted that Sinn Féin has proposed that rates be cut to 9% and that it was rejected by government last week.
The Department of Finance has also said that any rate change would be “unjustified” and too expensive to maintain.
Labour Party senator and candidate for Dublin Central Marie Sherlock criticised Fine Gael’s plan, claiming that if the party really wanted to cut the rates to 11% it would’ve done so during at Budget 2025.
“It’s next May, when they’re proposing to bring it in, which is cold comfort to a lot of those small businesses out there,” she said, adding that any plan to reduce the rate would only go onto improve the situation for larger businesses, such as hotel chains.
“We need to actually resolve the problem,” Sherlock added. “A lot of these businesses, operate out of premises that that are energy inefficient. So we need to actually put a retrofitting program and in place.”
Speaking on the same programme, People Before Profit councillor and candidate for Dublin South-Central Hazel De Nortúin said that any plan must focus on cutting employee’s tax rates.
While De Nortúin is supportive of cutting the VAT rate, People Before Profit prefer reducing the rate of USC paid by employees to “put that money straight into the pocket of the employees”.
She said that she had “no problem” with proposals to cut VAT rates for employers, but argued that it needed to be met with an increase in the minimum wage. She added that her party would prefer if rates were cut for SMEs and increased for larger multinationals.
McDonald said that Fine Gael’s proposals were “extraordinary”, claiming that the 11% rate “simply won’t cut it” and that companies who are at risk will not be targeted.
“Our proposals is to reduce the VAT rate to 9% for hospitality and for hairdressers. And to keep it at that rate,” she said, adding that Fine Gael’s proposal demonstrates that they “messed things up”.
“The consequences of this have been very, very serious. And this is just a very rushed attempted now to cover their tracks,” she added.
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