The VAT rate for the hospitality sector needs to be reduced amid claims the government is “trying to crush” small businesses, the Dáil has heard, following a protest outside Leinster House by hospitality groups on Tuesday.
Pub owners and restaurateurs were among those who attended Tuesday’s protest, with some in attendance reporting fears that they will be forced to close their doors in the coming months due to unsustainable costs.
West Cork TD Michael Collins told the Dáil the VAT rate needs to be reduced in order to tackle the problem of closing businesses on Irish high streets. It comes amid calls for a further reduction in the VAT rate from 13-and-a-half per cent on food sales.
Debating a motion, brought forward by Independent Ireland TDs on reducing the VAT rate, Michael Collins, leader of Independent Ireland, accused the government of being out of touch with reality.
“The Minister of State should remember one thing which is that all of these restaurants, cafés, pubs and hairdressers are small businesses. That is why the Government has them crushed. It is trying to crush them out of business. Why did the Minister of State not attend the protest yesterday?” he asked.
“If he did not, he should have been there to listen to what is going on on the ground. The Government is out of touch with what is going on on the ground.
“These businesses are paying rent, rates, electricity, staff, oil, pensions and property tax. It is one tax on top of another. What does the cup of tea and cup of coffee cost and how many of them do they have to make before they have to turn a profit? How many cups of tea and coffee do they have to sell?”
The motion highlights how food-serving hospitality businesses, and hospitality businesses were among the hardest hit by the economic fallout of Covid, with many food-led businesses experiencing a sharp decline in revenue due to lockdowns, public health restrictions, and subsequent changes in consumer behaviour.
It also points out that energy, labour and supply chain costs have sharply increased over the past two years, with food service businesses, including restaurants, cafés and pubs, finding themselves disproportionately affected due to their high operational dependency on energy and fresh supplies, alongside growing difficulties in hiring and retaining staff in a competitive labour market.
“The Government is totally and utterly out of touch and the problem is the two boys at the top; the Minister, Deputy Donohoe, and the Minister, Deputy Chambers. They are Dublin 4 Ministers and have no idea what is going on in the real world. I ask the Minister of State present to come down to my constituency and I will take him around to the communities. They are not nasty people down in west Cork.”
Minister for Trade, Enterprise, and Employment, Neale Richmond, told the house that the decision had been made in Budget 2025 not to reduce the VAT rate to 9 per cent.
“From the outset, let me be clear, I and indeed the entire Government are well aware of the pressures faced by the food hospitality sector. In my time in the Department of enterprise, I met with these businesses on a weekly if not daily basis and I still do,” the Minister said.
“Indeed, most recently, I was in Cork city last Friday meeting businesses and all the representative bodies. The previous Friday and Thursday, I was in Tipperary and there is not a day of the week when I do not go into businesses in my own constituency, like any dutiful TD does.”
Minister Richmond said that while he heard “concerns” of business owners, and that the hospitality sector was “vital” to tourism, communities and the economy, there was “no denying” that the cost of doing business had risen significantly over the past few years.
This, he said, had been driven by energy costs and inflation. Continuing, he said:
“However, I do acknowledge the other costs arising from domestic measures such as changes to statutory sick pay and the transition to a living wage, which will have a particular impact on labour-intensive businesses such as restaurants.
“These measures have been roundly supported from nearly all sides of these Houses. Indeed many of the people criticising them actually welcomed their introduction at one stage.
“There is, however, a very significant amount of work underway to mitigate the impact of these costs. In this regard, the supports the Government have offered, from tax debt warehousing, the increased cost of business grant, the recently announced power up grant and the changes to the VAT registration threshold are all having a significant impact.”