Tourism set to be biggest Budget loser over expected VAT increase
THE tourism industry is braced to be the biggest loser from today’s Budget, with the VAT rate on the hospitality sector to be hiked by 50pc.
The move will bring in hundreds of millions to help fund tax cuts and spending increases elsewhere.
Industry groups have raised massive concerns about the plan to restore the reduced 9pc rate to 13.5pc amid fears that restaurants will close and rural hotels will be hardest hit.
Tourism Minister Shane Ross and the Independent Alliance had resisted the VAT hike but Finance Minister Paschal Donohoe was last night set to plough ahead with increasing the rate back to 13.5pc.
The measure could raise more than €500m if applied across all areas currently covered by the 9pc rate.
The Irish Independent has learned that almost €40m in extra Budget funding for tourism is to be allocated to Mr Ross’s department in a bid to mitigate the impact of the VAT rise on the sector.
Sources said this came after “intense negotiations” between Mr Ross and Mr Donohoe on the issue.
Fine Gael Junior Tourism Minister Brendan Griffin was also involved in seeking additional funding to protect the industry.
Sources said the extra funding was “vital” to offset any negative effects on the tourism and hospitality sector from a change in the current VAT rate.
They said: “Minister Ross is determined any ill-effects will be compensated for, particularly in rural and regional areas”. It’s understood there will be engagement with the industry to decide how best to target the additional funding.
The reduced VAT rate was brought in back in 2011 to help the hospitality sector which had been badly hit by the economic crash. Its continuation has been called into question due to the lost funding to the Exchequer at a time when the price of hotel rooms in Dublin are rising.
Industry groups last night spoke of their fears about the expected VAT hike.
Adrian Cummins, chief executive of the Restaurants Association of Ireland (RAI), said there was “huge outrage and worry” among its members.
He raised concern about the VAT hike on top of the potential impact of Brexit and also said: “We seem to be the collateral damage for this Budget.”
He accused the Government of targeting the restaurant sector because it is “afraid” to take other revenue-raising measures like increasing the cost of diesel. Mr Cummins said small businesses in rural and Border counties “will go to the wall” due to the hike. President of the Irish Hotels Federation Michael Lennon claimed the increase would be “disastrous” for competitiveness.
He said that of the cash raised by the move, €400m would be borne by regional businesses and he claimed this would be “devastating” for rural hotels which would be “hit hardest”.