Creating jobs in uncertain times – keep 9% special VAT rate

Padraig Cribben, VFI Chief Executive, has rejected claims by economist Dan O’Brien that the special VAT rate introduced for the hospitality sector in 2011 has led to profiteering. In a letter to the Sunday Independent Padraig Cribben says “as an incentive to stimulate growth and employment the special VAT rate has been a success and provided exceptional return on investment”.

Here is the full text of his letter:


Using emotive language, Dan O’Brien (Sunday Independent, August 20) states the hospitality sector, including publicans, “trousered” the VAT reduction introduced in 2011 to aid an industry bearing the brunt of an era-defining recession.

Nothing could be further from the truth, while Mr O’Brien’s entire article lacks proper analysis.

As he should know, the special 9% VAT rate for the hospitality sector helped create thousands of jobs, increased tax receipts and remains a vital bulwark against the negative effects of Brexit.

Indeed, Minister for Finance Paschal Donohoe is on record as saying any increase in the VAT rate could negatively affect employment levels while Brexit has already impacted our tourism sector through the declining number of UK visitors.

According to the Irish Tourism Industry Confederation 57,000 new jobs have been created in the tourism sector since the special VAT rate was introduced, a fact ignored by Mr O’Brien when he says it has not been subjected to a proper cost/benefit analysis. The benefit is obvious.

While the jobs growth is impressive, further good news comes from Fáilte Ireland that reveals the value of direct tourism related tax receipts to the exchequer has increased to €1.91bn in 2016. This is an additional €646 million in direct tax receipts in 2016 compared to 2011.

As an incentive to stimulate growth and employment the special VAT rate has been a success and provided exceptional return on investment.

Mr O’Brien appears to suggest the recent increase in restaurant prices (7%) at a time when overall inflation remains static is an example of profiteering by the hospitality sector. He fails to consider that suppliers have increased their costs while a dramatic rise in insurance premiums along with minimum wage increases – and the subsequent ‘knock on’ wage demands from staff on higher rates – has led to significant inflation in the hospitality sector.

As for his assertion that no evidence exists of accommodation providers passing on the VAT decrease, in many cases the special rate allowed hoteliers to survive and remain viable businesses.

Mr O’Brien displays all the symptoms of being stuck in a bubble when he claims the sector is “booming”. Perhaps that may be the case in Dublin 1 & 2 and other isolated high-density tourist areas but let me assure him there are many localities around Ireland where businesses are hanging on by their fingertips. If he has any doubts about that fact he should get out and about more. The border and midland regions would be a good place to start.

As for his calls to “normalise” the hospitality sector’s tax positon, I would politely remind him the normal VAT rate for the hospitality sector across most EU member states is 10% or under.

Over half of all pubs now provide food and is a growing part of their trade.  Any tampering with the VAT rate would have a disproportional effect on the pubs over and above any other sector.

It is imperative the 9% VAT rate for the hospitality sector is retained in Budget 2018.

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