Will the Second Reduced Rate VAT be increased?

Originally published at 13:21

In the current budget it is unclear whether the food and tourism industry will be allowed to maintain the special reduced rate of 9% VAT (in comparison to 13.5% for most other industries), with the Independent suggesting a rise to at least 10%. As of an hour ago, ‘keep VAT at 9%’ on Twitter had the most retweeted posts about the 2014 budget: Adrian Cummins

15000 jobs created since @KeepVat9

2200 jobs lost @ 10%

4400 jobs lost @ 11%

6600 jobs lost @ 12%

10000 jobs lost @ 13.5%

#Budget14 PLRT’

While these facts are remarkable, it could be argued that these figures have been influenced by other factors. The 9% VAT rate introduced in July 2011 for the tourism and food industries has correlated with ‘The Gathering’, which has seen an increase of 291,000 tourists to Ireland (nearing the 375,000 figure set out by Michael Noonan in his 2012 budget). Is the 9% VAT rate really sustainable in the face of the conclusion of ‘The Gathering’, and is the aforementioned increase in jobs in the sector related to this tourism influx as opposed to VAT breaks?

Adrian Cummins, the Chief Executive of the Restaurants Association of Ireland, certainly thought so in a phone interview today. He said that the special band of 9% VAT was mostly responsible for the 15,000 jobs created since July 2011, with ‘The Gathering’ not impacting the creation of these jobs to the same extent. Asked whether he thought the 9% band was sustainable following the inevitable drop off in tourism at the end of 2013, he stated that based on economic research the maintenance of the 9% would benefit the industry, and that he was confident Michael Noonan would not repeal it in today’s budget. With major newspapers looking more pessimistic, however, we will have to wait until 2.30pm today to see whether this is the case.

Amended at 15:30

Stating that it is important for the Government’s fiscal policy to ‘reinforce success when possible’, Michael Noonan announced today that, in relation to the tourism and hospitality sector, he has ‘decided to continue the 9% rate of VAT for these vital sectors.’ This, coupled with the reduction in Air Travel Tax to zero from April 2014, should hopefully continue to boost the Irish food and tourism industry. Adrian Cummins’ optimism with regard to this issue was clearly well founded, and the forecasts of the Irish Times and the Independent in this case were incorrect.