Signals from Government that 9% Hospitality VAT cut in Budget may not go ahead
Just last month, Tánaiste Simon Harris said the government had made a 'solemn' commitment to reduce the VAT rate for the hospitality sector to 9%, but this week the government has been sending mixed signals on how it will proceed.
VAT for the tourism and hospitality sectors was reduced to 9% during the Covid-19 pandemic at a cost of €1.2bn to the exchequer. The previous 13.5% rate was reinstated last August, despite the sector's opposition.
Speaking to RTÉ Radio 1 this morning, Junior Minister in the Department of Justice Niall Collins said the VAT cut was not a 'done deal'.
The Fianna Fáil TD said his personal preference would be for targeted interventions across a number of sectors instead of a broad cut to VAT in hospitality.
Collins added that it would be an 'enormous cost in one jump' to move from 13.5% to 9% and stressed that it was 'simply not the case' that two thirds of the tax package in this year's Budget would be used for the hospitality VAT reduction.
Earlier this week, Minister for Finance Paschal Donohoe and Minister for Public Expenditure Jack Chambers published the Summer Economic Statement, which sets out the parameters for the forthcoming Budget.
At the press conference on Tuesday, Donohoe said it would cost between €950mn to €1bn to lower the VAT rate for food and accommodation hospitality for one full year.
This would equate to two-thirds of the €1.5bn tax package available in this year's Budget.
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He told reporters that he has always been clear that if the government greenlights this measure there will need to be 'trade-offs' in terms of other measures that the won't be delivered.
'The exact component of what the tax package will be and the other tax measures that will be in it, I can't answer that question until Budget day,' Donohoe said.
However,
speaking last month
, Donohoe said a cut in the VAT rate for hospitality 'is a shared priority across government'.
Meanwhile, yesterday, Minister for Enterprise Peter Burke defended the plans to cut the VAT rate.
He stressed the importance of the hospitality sector to the economy and the 200,000 people who are employed in it, arguing that the VAT reduction is a 'jobs measure' that will sustain employment in that sector.
'It is a viability measure, they are under significant pressure,' he said, noting that regulatory requirements like sick pay and wage improvements have reduced margins in the sector.
Many in the industry have pointed to the VAT rate being reinstated to 13.5% after the Covid-19 pandemic as a
significant strain on their businesses.
However, others, like trade union SIPTU, argue that a reduction in the VAT rate equates
to the government placing the interests of business above those of workers
.
SIPTU Deputy General Secretary, Greg Ennis argued that the government has also made commitments to workers to improve things like sick pay and to move further towards a living wage — moves they have since shelved.
'Without the Government reaffirming and meeting its commitments for improvements for workers in the private sector and a cost-of-living package, the cut in the VAT rate in Budget 2026 will amount to another kick in the teeth to them and their families,' said Ennis.
He added that the government has 'gone too far' in placing the interests of business above those of workers.
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