First kite of pre-budget season flew over Leinster House

RTÉ News​

12 hours ago

Bird watchers sometimes herald the sighting of the first swallow of the year as the start of spring.
And, not to be outdone, political anoraks have a similar phrase too.
The first kite of the pre-budget season flew high and mighty over a quieter than usual Leinster House this week, as the beginning of the Dáil's summer recess was interrupted by a potentially serious political row gliding into view.
Not for the first time, it involved a once cast-iron pre-election promise whose carefully choreographed landing now risks becoming a victim of some not exactly unexpected post-election economic turbulence.
And, not for the last time, the planned flight trajectory could yet be replaced by an all too public nose dive as the Coalition checks its political radar for signs of how to navigate its way between two competing financial priorities.
Hospitality tax cut
The reason for the situation is a Programme for Government promise which is now at real risk of being delayed.
In the January document, which outlines what Government intends to do in power, the Fianna Fáil-Fine Gael-Independents Coalition confirmed that the existing 13.5% hospitality VAT rate would be reduced.
That commitment, which was one of Fine Gael's key commitments in last November's General Election, was widely seen as indicating but did not explicitly point to this October's Budget as the moment the 13.5% rate would be cut to 9%.
Such a move would support struggling restaurants, bars, cafes, pubs and hotels, and therefore help protect jobs.
"Our Budget decisions could change depending on the economic environment we find ourselves in."
But its near €1 billion price tag would mean less financial space for cost of living supports for the wider pubic, an issue that was made crystal clear as Government outlined its immediate economic plans this week.
During a press conference at Government Buildings on Tuesday, Taoiseach Micheál Martin, Tánaiste Simon Harris, Minister for Finance Paschal Donohoe and Minister for Public Expenditure Jack Chambers announced the Coalition's National Development Plan and Summer Economic Statement.
The former outlined a €275bn capital projects war chest for the coming decade, including aspirational promises and dazzling numbers like €36bn for housing, €22bn for transport infrastructure such as the long-delayed Dublin Metro, and almost €10bn for health.
But the latter was more pragmatic, detailing in practical terms how much money Government actually has to play with in its coffers right now - and, specifically, space for €1.5bn worth of tax cuts in Budget 2026.
The figure may seem like a lot, and it is, but it still does not pay for everything voters want.
And, inevitably, that means difficult choices for the coalition to make, including when it comes to promises previously given.
Despite both Mr Martin and Mr Harris saying in recent months that the cut will happen, Mr Donohoe told reporters that the expected hospital VAT reduction from 13.5% to 9% was not as certain as previously indicated.
Rarely one to misspeak, Minister Donohoe explained that if the hospitality VAT rate is reduced it is important "to be open" about the fact "trade offs" with other sections of society may be necessary.
"I have always made clear my intention with regard to that [the hospitality VAT cut]," he said.
His use of the word "intention" rather than anything stronger peaked the interest of attending reporters.
"But I have also said there are trade offs, and there are consequences to that," he said.
"And there are therefore other things that we are not going to be able to do.
"If you were to bring forward a tax package that was to fund a full year measure that was in relation to the VAT, the cost of that would be nearly a €1bn."
"And then if I was to add to that other measures we've done in the past, we would have a tax package that is far bigger than what I believe would be safe," he said.
He added: "Our Budget decisions could change depending on the economic environment we find ourselves in."
A pre-budget kite, in other words.
And one that has caused if not a split, then certainly some friction, within the Coalition as competing political priorities have emerged.
Internal Coalition friction
While Minister Donohoe's comments were likely designed to point out the reality of the dilemma for Government rather than specifically rule out the hospitality tax cuts this year, they did open the door to the prospect within at least some sections of the coalition.
By Wednesday, several Government sources had indicated privately that the cut should be delayed until July 2026, with Fianna Fáil members - including the wily long-time Limerick City TD Willie O'Dea - among those to publicly nudge forward the argument.
Speaking on Friday on RTÉ's Morning Ireland programme, Deputy O'Dea said given the limited scope for tax reductions in the upcoming budget, he would "like to see it [the €1.5bn in available tax cuts] more equitably divided", with "an increase in tax credits and tax bands in line with inflation" his priority.
Asked if this is because it would be difficult to convince voters to support helping the hospitality sector first, given a disputed reputation for price gouging by some businesses in that sector, Deputy O'Dea said: "It's not just a question of would it be hard to sell to the public, it's would it be good for the economy."
Responding to suggestions of friction in the Coalition over the situation, he added: "I wouldn't describe it as friction, people have different views and that's what Coalition government is about."
"I don't understand what kind of kites the Government are flying in relation to this cut for the hospitality industry, the Government are sewing massive seeds of confusion on this yet again."
Deputy O'Dea's view was echoed privately by numerous Fianna Fáil TDs, and a smaller number of Fine Gael colleagues, who questioned how prioritising help for businesses instead of cost of living supports for the wider public might play out.
And senior Government sources did little to kill off the suggestion when asked.
But Fine Gael TD and Minister for Enterprise and Tourism Peter Burke - the politician responsible for the sector - had a different view during a hastily organised press briefing at Government Buildings on Thursday.
Asked if he would acknowledge the hospitality VAT tax rate cut will now be delayed until next summer, Minister Burke responded:
"Absolutely not acknowledging that, any negotiations will form part of the budget.
"We're now still in July and it's very important to note the Budget will consider all options in every different sector."
Opposition criticism
The opposition, it is fair to say, were less than impressed over the apparent confusion over whether the hospitality tax cut would still go ahead on 1 January or be delayed until at least next July.
Labour TD Duncan Smith said bluntly: "I don't understand what kind of kites the Government are flying in relation to this cut for the hospitality industry, the Government are sewing massive seeds of confusion on this yet again."
That view was shared by other opposition TDs, including Sinn Féin's Donnchadh O'Laoghaire who said the Coalition needs to find a way to help both the hospitality sector and the wider public through cost of living supports.
And it was echoed too by non-political groups representing those in the sector, which became locked in a war of words over what should happen next.
Responding to the watering down of the previous tax cut promise, Restaurants Association of Ireland Chief Executive Adrian Cummins said: "If the VAT rate doesn't reduce to 9% from January 1, you'll see more and more closures" and resulting job losses, noting more than 200 restaurants have already closed this year.
However, the view was countered by the Irish Congress of Trade Unions general secretary Owen Reidy.
"The proposal to cut the VAT rate at a time of huge economic uncertainty flies in the face of all available evidence, and would amount to nothing less than economic vandalism," he said.
"The Government has identified many laudable priorities as part of its programme for Government: housing, reductions in child poverty, and investment in disability services.
"Given that ministers have been giving serious warnings about economic uncertainty, why would they prioritise a corporate handout costing almost €1bn?"
Government dilemma
That latter point goes to the heart of the difficulty now facing Government, and in part helps to explain the early nature of this week's at times contradictory pre-budget kite flying.
While there is a strong argument for the need to protect businesses, and therefore jobs, in the hospitality sector during a period of intense global financial uncertainty, few politicians would want to be seen to be doing so at the expense of supports for households during that same economic turbulence.
In that context a calculated delay to the hospitality VAT rate cut plans makes some sense, as it would allow Government to continue to argue it will - eventually - keep its promise while giving itself more short-term financial space to protect the wider public.
That plan, however, comes with a significant catch, in that the hospitality sector is insistent a delay to the tax cut will see people lose their jobs.
But, more than one Government TD has privately noted this week, not delaying the tax cut in order to have more space for wider public cost of living supports would put households at risk and give opposition parties an obvious line of attack the coalition could do without.
The first kite of the pre-budget season has now soared into view.
Depending on which way the economic and public wind blows, it could yet lead to an unexpectedly bumpy political ride.