Restaurant closures have cost State €288m this year
CLOSURES of restaurants, cafés and other food-led businesses may have cost the economy and State hundreds of millions of euro already this year, according to a new report.
The Restaurants Association of Ireland (RAI) is launching a new report today which finds the average closure of a restaurant leads to losses of up to €1.36million to the State.
It said that latest figures show 212 such businesses have shut their doors for good so far in 2024, meaning average losses of up to €288million.
The Economic Impact of Restaurant Closures report was conducted by leading economist Jim Power and commissioned by the RAI. He calculated the closure of one restaurant results in an average of 22 direct employees losing their posts, while around 13 indirect jobs will also be lost.
This causes the loss per restaurant of €576,554 in gross wages, €115,310 in payroll taxes to the Exchequer, €105,000 in VAT receipts, €11,874 in commercial rates to local authorities and €4,583 in water charge receipts.
If the workers laid off had to go on social welfare payments, the annual cost would be around €440,000, among other impacts.
The RAI has long called for a return of the 9% VAT rate for food-led businesses – a proposal that the Department of Finance estimates would cost up to €545million a year. Mr Power concluded that after 400 restaurant closures, the State would begin to lose more money than a return of the lower rate would cost.
Adrian Cummins, CEO of the RAI, said: ‘The social impact the loss of a local restaurant or café has on communities, particularly in rural areas, is well understood. For the first time, this new report lays out the stark economic reality of how damaging food-led hospitality closures are to the State and the economy.
‘The assumption among civil servants and in certain other quarters that where one restaurant closes down, another will shortly open is unfounded – particularly in parts of the country outside of Dublin.’
He continued: ‘When a local restaurant or café closes and its staff are laid off, it is not a simple case of them finding another good job nearby or the business reopening under new ownership. Those living in areas with shuttered-up premises can attest to this.
‘The Government must reduce the VAT rate to 9% to make the food-led hospitality industry viable again and protect local businesses and local jobs. It is the only way they can achieve this – it is the only show in town. This report makes it clear that the question for the Government is now not if it can afford to return the 9% VAT rate or not, but how it can possibly afford not to?’
The RAI estimates that, in 2024, an average of two restaurants are closing each day, with over 70 closures in February alone. The closures are a combination of a more challenged consumer due to cost-of-living hikes; increased costs, including food, energy, interest rates, and wages.
They have also had to fund an increase in the minimum wage, the increase in VAT from 9% to 13.5% in September 2023; statutory sick pay changes; parental leave changes; the extra bank holiday; higher PRSI; and autoenrolment for pensions.
In the Dáil last week, Finance Minister Michael McGrath said he has ‘no plans’ to reduce the VAT rate for the hospitality sector, when questioned by Cork East TD James O’Connor.
He added: ‘The estimated cost of the 9% VAT rate for tourism and hospitality, from 1 November 2020 to 31 August 2023, was €1.2billion.’
‘How can it possibly afford not to?’