VAT Rate for Hospitality Sector: Motion (Resumed) [Private Members]

The following motion was moved by Deputy Michael Fitzmaurice on Wednesday, 16 October 2024:

That Dáil Éireann:

notes that:

— inflationary pressures over the past number of years have significantly exacerbated financial pressures on both consumers and businesses, particularly within the food service sector, which has been severely impacted by the spiralling costs of energy, food produce, insurance, labour and supply chain disruptions;

— food-serving hospitality businesses, and hospitality businesses more generally, were among the hardest hit by the economic consequences of the COVID-19 pandemic, with many food-led businesses experiencing a sharp decline in revenue due to lockdowns, public health restrictions, and subsequent changes in consumer behaviour;

— energy, labour and supply chain costs have sharply increased over the past two years, with food service businesses, including restaurants, cafés and pubs, finding themselves disproportionately affected due to their high operational dependency on energy and fresh supplies, alongside growing difficulties in hiring and retaining staff in a competitive labour market;

— the temporary reduction in the VAT rate for the hospitality sector during the COVID-19 pandemic, which applied to food sales, provided critical and timely relief to many struggling food service businesses, enabling them to remain viable, maintain jobs, and serve their local communities during a period of profound economic disruption;

— however, this temporary VAT reduction ended in September 2023, resulting in a 50 per cent increase in the hospitality sector's VAT rate from 9 per cent to 13.5 per cent, which has further exacerbated financial pressures on food-led businesses and threatened their viability;

— the Restaurants Association of Ireland (RAI), in its pre-Budget submission, has formally requested the reinstatement of a lower VAT rate specifically for food sales, not the accommodation element of the hospitality sector, highlighting the necessity of such a measure to ensure the survival of the food sector in the face of the cost of doing business challenges facing the hospitality sector;

— food-led businesses play an essential role in Ireland's economy, providing employment for tens of thousands of individuals, particularly in rural and regional areas, where restaurants and cafés are often integral to the local economy and serve as key drivers of tourism and community life;

— food businesses also contribute significantly to Ireland's cultural identity, promoting local cuisine and food heritage, while being instrumental in attracting international tourists to the country, a sector that is critically important to the broader Irish economy;

— the reversion to a higher VAT rate for food sales has exacerbated financial pressures on small- and medium-sized food service businesses, with many facing the prospect of closure due to the unsustainable nature of current operating conditions, as demonstrated by the closure of over 600 food-led businesses in the past twelve months alone; and

— the food service sector is still reeling from the long-term effects of the COVID-19 pandemic, including the warehousing of revenue debts which are now coming due for repayment, further compounding the financial burden on businesses that are already struggling to cope with rising costs;

recognises that:

— many restaurants, cafés and other food-serving hospitality businesses continue to grapple with the financial fallout from COVID-19 restrictions, with inflationary pressures and labour shortages now posing additional, severe challenges to their operational viability;

— a competitive VAT rate, as opposed to the current rate which ranks amongst the highest in the European Union (EU), is not only critical to the viability of the food service sector, but is also essential to the broader economy, given the sector’s role in providing employment, supporting tourism and fostering community resilience, particularly in rural and regional areas;

— reinstating a 9 per cent VAT rate specifically for food sales would enable businesses to manage rising operational costs more effectively, reduce the need to pass on price increases to consumers and provide a safeguard against the potential closure of many more food-led enterprises, which would otherwise risk the loss of jobs and vital community services;

— food-led businesses face a unique set of challenges that differ from other parts of the hospitality sector, including hotels in larger cities that can rely on high-margin accommodation services and practices such as dynamic pricing to maintain profitability in the face of rising costs meaning, as such, that hotel rooms and all-inclusive or bed and board deals should not attract the lower VAT rate intended to assist food-led businesses;

— the reinstatement of a lower VAT rate for food sales would directly benefit consumers, by ensuring that food service businesses can absorb some of the rising costs of raw materials, energy, and labour without passing on unsustainable price increases to customers, many of whom are already struggling with the rising cost of living;

— the successful implementation of similar VAT reductions on food sales in other EU member states, in accordance with EU VAT law, demonstrates that such measures are both feasible and effective, providing essential relief to struggling food service sectors in times of economic difficulty, and promoting long-term stability and job retention within the sector;

— successive increases to the National Minimum Wage, while aimed at improving living standards, have contributed to wider wage inflation across the food service sector, further increasing the financial strain on businesses that already operate on narrow margins;

— the introduction of, and subsequent increases in, statutory paid sick days, though beneficial for workers, have added additional costs to employers in the food service industry, many of whom are struggling to absorb these new financial and regulatory obligations in the face of rising operational costs; and

— the impending introduction of pension auto-enrolment will further increase the cost burden on employers, particularly small- and medium-sized businesses in the food-led sector, who must now account for these additional mandatory contributions, compounding the financial pressures caused by inflation and other regulatory changes;

acknowledges that:

— the previous temporary VAT reduction for the hospitality sector demonstrated the positive and wide-reaching effects of such a measure, helping to sustain jobs, protect businesses, and secure Ireland's reputation as a leading food tourism destination;

— EU VAT directives allow member states to apply lower VAT rates to specific sectors, including food sales, thereby offering the Government a legally sound and flexible framework for implementing the permanent reinstatement of a lower VAT rate for food-led businesses, without breaching European law or undermining public finances;

— the distinct operational and financial needs of food-led businesses, which often operate on narrower margins and face higher fixed costs than other parts of the hospitality sector, necessitate targeted VAT relief measures that are specifically designed to protect and support these businesses; and

— food service businesses, particularly those operating in smaller towns and rural areas, serve as economic and social hubs within their communities, offering essential services and contributing to the social fabric of Irish society; and

calls on the Government to:

— permanently reinstate a lower 9 per cent rate of VAT on food sales in Ireland, in line with the pre-Budget submissions of the Restaurants Association of Ireland, ensuring that this rate applies specifically to food-led businesses and not to other parts of the hospitality sector such as the provision of accommodation by hotels;

— ensure that this targeted VAT relief measure is implemented in a way that reflects the specific needs of food-led businesses, including restaurants, cafés and other food service establishments, which are uniquely vulnerable to rising operational costs and inflationary pressures;

— recognise the critical contribution of the food service sector to the Irish economy and prioritise the protection and sustainability of this sector as a vital component of the country's broader economic and social infrastructure;

— take into account the long-term benefits of reinstating a lower VAT rate for food sales, including increased job retention, enhanced economic resilience, the continued growth of Ireland's food tourism industry and the preservation of Ireland's unique cultural and culinary heritage; and

— engage in meaningful and sustained dialogue with representatives of the food service sector, including the Restaurants Association of Ireland, to ensure that future VAT policy decisions are informed by the real-world experiences and challenges facing businesses and consumers and that any future changes to VAT rates are designed to foster long-term stability and competitiveness within the sector.

The following amendment No. 1 was moved by Minister of State at the Department of Enterprise, Trade and Employment, Deputy Emer Higgins:

To delete all the words after "Dáil Éireann" and substitute the following:

"notes that:

— the Government is very conscious of the needs of the tourist and hospitality sector and wants to maintain a healthy and profitable environment for these sectors going forward;

— in this regard, it reduced on a temporary basis the Value Added Tax (VAT) rate from 13.5 per cent to 9 per cent on 1st November, 2020, in recognition of the fact that the sector was amongst the most impacted by the public health restrictions put in place throughout the pandemic;

— the cost of this VAT measure for the period from 1st November, 2020, to 31st August, 2023, was over €1.3 billion, and this represented a very substantial support by the Government to the hospitality and tourism related sectors;

— the cost of a further temporary VAT reduction to 9 per cent for a full year is estimated to be €868 million, and even where the measure is restricted to food and catering services, the estimated full year cost is €675 million; and

— Ireland is not significantly out of line with other countries in relation to the application of VAT in this sector, for instance, it is noteworthy that 14 European Union (EU) countries have a VAT rate of 12 per cent or higher on food services, and our nearest neighbour, Great Britain and Northern Ireland, has a VAT rate of 20 per cent on food services;

recalls that:

— the hospitality sector benefits when consumers have greater disposable income, so Government measures to address cost-of-living issues benefit business through increased household income;

— the Government has made substantial fiscal support available to assist with the cost-of-living challenges that arose after the global increase in energy prices;

— changes were made to the tax Debt Warehousing Scheme earlier this year, including a reduction in the interest rate on warehoused debt to zero per cent, which provided critical support to businesses in the hospitality sector (amongst other sectors) at a very difficult time;

— during the summer, the Government agreed a range of measures to assist businesses in adjusting to increased costs and to improve the cost competitiveness of firms more generally, and these measures included:

— increasing the employer Pay Related Social Insurance (PRSI) threshold from €441 to €496 with effect from 1st October, 2024, and this ensured that employers with employees earning the weekly equivalent of the National Minimum Wage will pay the lower employer PRSI rate of 8.8 per cent;

— launching a second phase of the Increased Cost of Business (ICOB) scheme, targeted at businesses in the retail and hospitality sectors, and this scheme has now paid out over €243 million to almost 75,000 small- and medium-sized enterprises (SMEs) right across the country over the past six months;

— doubling the Circular Economy Innovation Grant Scheme 2024 (CEIGS) from €5,000 to €10,000; and

— increasing the maximum amount available under the Energy Efficiency Grant scheme to €10,000, and reducing the business contribution rate from 50 per cent to 25 per cent;

— the personal income tax package in Budget 2025 was designed to support low and middle income earners, building on the progress already made during this Government's term, specifically in relation to increases to tax credits and Universal Social Charge (USC) reductions;

— the personal income tax package of €1.6 billion included:

— increasing the main tax credits, the Personal, Employee and Earned Income Credits, by €125; and

— increasing the Standard Rate Cut Off Point by €2,000 to €44,000, with proportionate increases for married couples and civil partners;

— reducing the 4 per cent rate of USC to 3 per cent; and

— the Government, in Budget 2025, agreed a range of measures to assist businesses in adjusting to increased costs and to improve the cost competitiveness of firms more generally, and these measures include:

— the Power Up Grant, which provides businesses that received the second ICOB payment and that now meet the eligibility criteria for a grant in 2024, an energy grant of €4,000; and

— Budget 2025 will also increase VAT registration thresholds from 1st January, to €42,500 for services and €85,000 for goods, and this will help small businesses recently drawn into the VAT net by current levels of inflation; and

recognises that:

— this approach to the cost-of-living challenge balances the need to provide the necessary fiscal support to households and firms while, at the same time, maintaining our public finances on a sustainable trajectory over the medium-term and avoiding a situation whereby the Government's fiscal response becomes part of the inflation problem;

— the policy response has been focused on measures that are temporary, timely and targeted at those most in need;

— the Government's measures to date are having the desired impact since:

— inflationary pressures have eased considerably over the last year and the domestic economy has grown at a robust pace, and the easing in inflationary pressure will boost real disposable income and enable the pace of consumer spending growth to pick up as the year progresses; and

— Ireland continues to experience record high levels of employment with almost three quarters of our working-age population now in employment and with participation amongst female workers at its highest level ever; and

— the cumulative impact of personal income tax changes over the lifetime of this Government has seen:

— the main tax credits increased by 21 per cent or €350 each from €1,650 to €2,000;

— the Standard Rate Cut Off Point for single person increased by 25 per cent or €8,700, going from €35,300 to €44,000, with commensurate increases for persons who are married or in a civil partnership;

— the USC middle rate reduced by 1.5 percentage points from 4.5 per cent to 3 per cent; and

— the 2 per cent USC ceiling band increased by 34 per cent or €6,898, going from €20,484 to €27,382.".

Debate resumed on amendment No. 1 to amendment No. 1:

To insert the following after "the 2 per cent USC ceiling band increased by 34 per cent or €6,898, going from €20,484 to €27,382":

"further notes that:

— individual hospitality sector businesses are facing a number challenges;

— employment in the accommodation and food services sector is close to an all-time high of 190,000, and focus must be on addressing the structural issues required to sustain businesses in the sector to improve innovation, skills development, productivity and sustainability;

— average hourly earnings in the accommodation and food sector continues to be one of the lowest of any economic sector;

— the National Minimum Wage (NMW) remains below the level needed for a living income, and supports calls for it to be linked to 66 per cent of average hourly wages, above the Government target of 60 per cent from 2026;

— there is an 'inability to pay' clause in law for employers who are unable to pay NMW rates to enable them to seek an exemption from increases; and

— Ireland lags behind other European countries on the provision of worker's rights and benefits, and that auto-enrolment and statutory sick pay are long overdue;

calls for:

— the establishment of a State agency to support the hospitality sector, modelled on Teagasc, to boost sustainability and productivity, and provide research, advisory and training services;

— a strategy to drive down costs for small businesses focused on energy and insurance prices;

— increased discretionary powers for local authorities to levy a hotel bed tax if they wish, as is the norm in other European countries, to fund investment in the public realm of our cities and towns;

— reform of the outdated commercial rates system; and

— reform of outdated licensing laws to support the night-time economy".

- (Deputy Ged Nash)

An Ceann Comhairle

I must now deal with a postponed division relating to the motion on the VAT rate for the hospitality sector. On Wednesday, 16 October 2024, on the question, "That the amendment to the amendment be agreed to", a division was claimed and in accordance with Standing Order 80(2), that division must be taken now.

Amendment to amendment put:

The Dáil divided: Tá, 54; Níl, 73; Staon, 0.

Tá

Andrews, Chris.
Bacik, Ivana.
Barry, Mick.
Brady, John.
Browne, Martin.
Buckley, Pat.
Canney, Seán.
Carthy, Matt.
Collins, Joan.
Collins, Michael.
Connolly, Catherine.
Conway-Walsh, Rose.
Cronin, Réada.
Crowe, Seán.
Cullinane, David.
Daly, Pa.
Doherty, Pearse.
Donnelly, Paul.
Ellis, Dessie.
Farrell, Mairéad.
Fitzmaurice, Michael.
Fitzpatrick, Peter.
Gannon, Gary.
Guirke, Johnny.
Harkin, Marian.
Healy-Rae, Danny.
Healy-Rae, Michael.
Howlin, Brendan.
Kenny, Martin.
Kerrane, Claire.
Mac Lochlainn, Pádraig.
MacSharry, Marc.
McGrath, Mattie.
Mitchell, Denise.
Munster, Imelda.
Mythen, Johnny.
Nash, Ged.
Nolan, Carol.
O'Callaghan, Cian.
O'Donoghue, Richard.
O'Reilly, Louise.
O'Rourke, Darren.
Ó Broin, Eoin.
Ó Murchú, Ruairí.
Ó Snodaigh, Aengus.
Pringle, Thomas.
Quinlivan, Maurice.
Shanahan, Matt.
Sherlock, Sean.
Shortall, Róisín.
Smith, Duncan.
Tóibín, Peadar.
Tully, Pauline.
Wynne, Violet-Anne.

Níl

Brophy, Colm.
Browne, James.
Bruton, Richard.
Burke, Colm.
Butler, Mary.
Byrne, Thomas.
Cahill, Jackie.
Calleary, Dara.
Cannon, Ciarán.
Chambers, Jack.
Collins, Niall.
Costello, Patrick.
Coveney, Simon.
Creed, Michael.
Crowe, Cathal.
Devlin, Cormac.
Dillon, Alan.
Donnelly, Stephen.
Donohoe, Paschal.
Duffy, Francis Noel.
Durkan, Bernard J.
English, Damien.
Farrell, Alan.
Feighan, Frankie.
Flaherty, Joe.
Flanagan, Charles.
Fleming, Sean.
Foley, Norma.
Griffin, Brendan.
Haughey, Seán.
Heydon, Martin.
Higgins, Emer.
Hourigan, Neasa.
Humphreys, Heather.
Kehoe, Paul.
Lahart, John.
Lawless, James.
Leddin, Brian.
Madigan, Josepha.
Martin, Catherine.
Martin, Micheál.
Matthews, Steven.
McAuliffe, Paul.
McConalogue, Charlie.
McEntee, Helen.
Moynihan, Michael.
Murnane O'Connor, Jennifer.
Naughton, Hildegarde.
Noonan, Malcolm.
O'Brien, Darragh.
O'Brien, Joe.
O'Callaghan, Jim.
O'Connor, James.
O'Dea, Willie.
O'Donnell, Kieran.
O'Donovan, Patrick.
O'Dowd, Fergus.
O'Gorman, Roderic.
O'Sullivan, Christopher.
O'Sullivan, Pádraig.
Ó Cathasaigh, Marc.
Ó Cuív, Éamon.
Phelan, John Paul.
Rabbitte, Anne.
Richmond, Neale.
Ring, Michael.
Ryan, Eamon.
Smith, Brendan.
Smyth, Niamh.
Smyth, Ossian.
Stanton, David.
Troy, Robert.
Varadkar, Leo.

Staon

Tellers: Tá, Deputies Ged Nash and Sean Sherlock; Níl, Deputies Hildegarde Naughton and Cormac Devlin.

Amendment to amendment declared lost.

Amendment put:

The Dáil divided: Tá, 73; Níl, 52; Staon, 0.

Tá

Brophy, Colm.
Browne, James.
Bruton, Richard.
Burke, Colm.
Butler, Mary.
Byrne, Thomas.
Cahill, Jackie.
Calleary, Dara.
Cannon, Ciarán.
Chambers, Jack.
Costello, Patrick.
Coveney, Simon.
Creed, Michael.
Crowe, Cathal.
Devlin, Cormac.
Dillon, Alan.
Donnelly, Stephen.
Donohoe, Paschal.
Duffy, Francis Noel.
Durkan, Bernard J.
English, Damien.
Farrell, Alan.
Feighan, Frankie.
Flaherty, Joe.
Flanagan, Charles.
Fleming, Sean.
Foley, Norma.
Griffin, Brendan.
Haughey, Seán.
Heydon, Martin.
Higgins, Emer.
Hourigan, Neasa.
Humphreys, Heather.
Kehoe, Paul.
Lahart, John.
Lawless, James.
Leddin, Brian.
Madigan, Josepha.
Martin, Catherine.
Martin, Micheál.
Matthews, Steven.
McAuliffe, Paul.
McConalogue, Charlie.
McEntee, Helen.
Moynihan, Aindrias.
Moynihan, Michael.
Murnane O'Connor, Jennifer.
Naughton, Hildegarde.
Noonan, Malcolm.
O'Brien, Darragh.
O'Brien, Joe.
O'Callaghan, Jim.
O'Connor, James.
O'Dea, Willie.
O'Donnell, Kieran.
O'Donovan, Patrick.
O'Dowd, Fergus.
O'Gorman, Roderic.
O'Sullivan, Christopher.
O'Sullivan, Pádraig.
Ó Cathasaigh, Marc.
Ó Cuív, Éamon.
Phelan, John Paul.
Rabbitte, Anne.
Richmond, Neale.
Ring, Michael.
Ryan, Eamon.
Smith, Brendan.
Smyth, Niamh.
Smyth, Ossian.
Stanton, David.
Troy, Robert.
Varadkar, Leo.

Níl

Andrews, Chris.
Bacik, Ivana.
Barry, Mick.
Brady, John.
Browne, Martin.
Buckley, Pat.
Canney, Seán.
Carthy, Matt.
Collins, Joan.
Collins, Michael.
Connolly, Catherine.
Conway-Walsh, Rose.
Cronin, Réada.
Crowe, Seán.
Cullinane, David.
Daly, Pa.
Doherty, Pearse.
Donnelly, Paul.
Ellis, Dessie.
Farrell, Mairéad.
Fitzmaurice, Michael.
Fitzpatrick, Peter.
Gannon, Gary.
Guirke, Johnny.
Harkin, Marian.
Healy-Rae, Danny.
Healy-Rae, Michael.
Howlin, Brendan.
Kenny, Martin.
Kerrane, Claire.
MacSharry, Marc.
McGrath, Mattie.
Mitchell, Denise.
Munster, Imelda.
Mythen, Johnny.
Nash, Ged.
Nolan, Carol.
O'Callaghan, Cian.
O'Donoghue, Richard.
O'Reilly, Louise.
O'Rourke, Darren.
Ó Broin, Eoin.
Ó Murchú, Ruairí.
Ó Snodaigh, Aengus.
Pringle, Thomas.
Quinlivan, Maurice.
Shanahan, Matt.
Sherlock, Sean.
Shortall, Róisín.
Tóibín, Peadar.
Tully, Pauline.
Wynne, Violet-Anne.

Staon

Tellers: Tá, Deputies Hildegarde Naughton and Cormac Devlin; Níl, Deputies Michael Fitzmaurice and Thomas Pringle.

Amendment declared carried.

Question put: "That the motion, as amended, be agreed to"

The Dáil divided: Tá, 73; Níl, 52; Staon, 0.

Tá

Brophy, Colm.
Browne, James.
Bruton, Richard.
Burke, Colm.
Butler, Mary.
Byrne, Thomas.
Cahill, Jackie.
Calleary, Dara.
Cannon, Ciarán.
Chambers, Jack.
Costello, Patrick.
Coveney, Simon.
Creed, Michael.
Crowe, Cathal.
Devlin, Cormac.
Dillon, Alan.
Donnelly, Stephen.
Donohoe, Paschal.
Duffy, Francis Noel.
Durkan, Bernard J.
English, Damien.
Farrell, Alan.
Feighan, Frankie.
Flaherty, Joe.
Flanagan, Charles.
Fleming, Sean.
Foley, Norma.
Griffin, Brendan.
Haughey, Seán.
Heydon, Martin.
Higgins, Emer.
Hourigan, Neasa.
Humphreys, Heather.
Kehoe, Paul.
Lahart, John.
Lawless, James.
Leddin, Brian.
Madigan, Josepha.
Martin, Catherine.
Martin, Micheál.
Matthews, Steven.
McAuliffe, Paul.
McConalogue, Charlie.
McEntee, Helen.
Moynihan, Aindrias.
Moynihan, Michael.
Murnane O'Connor, Jennifer.
Naughton, Hildegarde.
Noonan, Malcolm.
O'Brien, Darragh.
O'Brien, Joe.
O'Callaghan, Jim.
O'Connor, James.
O'Dea, Willie.
O'Donnell, Kieran.
O'Donovan, Patrick.
O'Dowd, Fergus.
O'Gorman, Roderic.
O'Sullivan, Christopher.
O'Sullivan, Pádraig.
Ó Cathasaigh, Marc.
Ó Cuív, Éamon.
Phelan, John Paul.
Rabbitte, Anne.
Richmond, Neale.
Ring, Michael.
Ryan, Eamon.
Smith, Brendan.
Smyth, Niamh.
Smyth, Ossian.
Stanton, David.
Troy, Robert.
Varadkar, Leo.

Níl

Andrews, Chris.
Bacik, Ivana.
Barry, Mick.
Brady, John.
Browne, Martin.
Buckley, Pat.
Canney, Seán.
Carthy, Matt.
Collins, Joan.
Collins, Michael.
Connolly, Catherine.
Conway-Walsh, Rose.
Cronin, Réada.
Crowe, Seán.
Cullinane, David.
Daly, Pa.
Doherty, Pearse.
Donnelly, Paul.
Ellis, Dessie.
Farrell, Mairéad.
Fitzmaurice, Michael.
Fitzpatrick, Peter.
Gannon, Gary.
Guirke, Johnny.
Harkin, Marian.
Healy-Rae, Danny.
Healy-Rae, Michael.
Howlin, Brendan.
Kenny, Martin.
Kerrane, Claire.
MacSharry, Marc.
McGrath, Mattie.
Mitchell, Denise.
Munster, Imelda.
Mythen, Johnny.
Nash, Ged.
Nolan, Carol.
O'Callaghan, Cian.
O'Donoghue, Richard.
O'Reilly, Louise.
O'Rourke, Darren.
Ó Broin, Eoin.
Ó Murchú, Ruairí.
Ó Snodaigh, Aengus.
Pringle, Thomas.
Quinlivan, Maurice.
Shanahan, Matt.
Sherlock, Sean.
Shortall, Róisín.
Tóibín, Peadar.
Tully, Pauline.
Wynne, Violet-Anne.

Staon

Tellers: Tá, Deputies Hildegarde Naughton and Cormac Devlin; Níl, Deputies Michael Fitzmaurice and Thomas Pringle.

Question declared carried.

Dáil Éireann debate - Wednesday, 16 Oct 2024