VAT cuts serve busi­ness, not con­sumers

The Irish Times - - Business News -

Anti-drink cam­paign­ers were quick out of the blocks this week to de­nounce tax cut cam­paigns by parts of the hos­pi­tal­ity in­dus­try. Al­co­hol Ac­tion Ire­land (AAI), an ad­vo­cacy group, de­scribed calls by pub­li­cans and res­tau­ra­teurs for al­co­hol VAT cuts to weather the cri­sis as “ir­re­spon­si­ble”. It is likely, how­ever, that AAI may have mis­in­ter­preted the in­ten­tion of the VAT-cut pro­pos­als.

The two publi­can lobby groups, the Li­censed Vint­ners As­so­ci­a­tion and Vint­ners Fed­er­a­tion of Ire­land, have banded to­gether with man­u­fac­tur­ers’ group, Drinks In­dus­try Ire­land, to call for a tem­po­rary cut in VAT charged on pub drink sales from 23 per cent to 9 per cent.

Mean­while, the Restau­rants As­so­ci­a­tion of Ire­land this week called for a 5 per cent “com­pos­ite” VAT rate on al­co­hol and food sold to­gether as meals, which would ben­e­fit its gas­tropub mem­bers.

AAI sub­se­quently wrote to The Ir­ish Times to de­nounce what it viewed as calls to “re­duce the cost of al­co­hol and fur­ther fuel an al­ready flam­ing pub­lic health cri­sis of al­co­hol harm”.

It added: “Re­duc­ing al­co­hol taxes would sim­ply stim­u­late an in­crease of al­co­hol use, which ev­i­dence demon­strates will cause fur­ther harm.”

How­ever, the calls for VAT cuts are not in­tended by the in­dus­try to al­low for pub­li­cans or res­tau­ra­teurs to cut the price of drink to tempt more con­sumers. Price is not the is­sue. Cus­tomers are not stay­ing away be­cause drink is too ex­pen­sive. They are ab­sent be­cause of so­cial dis­tanc­ing, caus­ing huge losses.

It is the in­ten­tion of pub­li­cans and res­tau­ra­teurs to pocket any VAT re­duc­tion to re­pair their bat­tered mar­gins, while keep­ing prices for con­sumers the same. This is what hap­pened in 2011 when the in­com­ing Fine Gael-led ad­min­is­tra­tion cut tourism VAT to 9 per cent. It was a highly-tar­geted in­di­rect bailout of the sec­tor, adding 4.5 per­cent­age points straight to most op­er­a­tors’ bot­tom lines.

The Gov­ern­ment is com­ing un­der in­creas­ing pres­sure to re­peat the trick in 2020 to pre­vent a wave of insolvenci­es.

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