ESRI questions the need to retain 9% tourism Vat rate

Economic think-tank the ESRI has questioned the need to retain the 9% Vat rate for the tourism and hospitality sectors.

Addressing yesterday’s sitting of the Oireachtas Select Committee on Budgetary Oversight, Professor Alan Barrett said: “Learning a lesson from the past, all tax incentives should be reviewed periodically to make sure they are still relevant.”

“We don’t know if the tourism-related incentive introduced by the last government is still needed, but the case needs to be explored,” he said.

At yesterday’s meeting, the ESRI also voiced its opposition to the planned removal of the universal social charge (USC).

The Government plans to phase out the unpopular USC tax over the next five annual budgets, as part of an overall reform of the income tax system.

Calling it a very effective tool for attracting tax revenue, Mr Barrett argued a removal, just because Ireland has emerged from recession, would not be wise.

“The USC has many desirable features as a source of revenue — progressivity, transparency and stability, to mention three. For this reason, we are unconvinced that moves to abolish the USC are wise ... this is especially the case if the non-indexation of tax bands and allowances is used to fund any reductions,” he said.

“Even if the overall budgetary position looks healthy, we know from recent experience that the tax base can be fragile.

“For this reason, it is desirable that the tax base is broad and that reliance is placed on the tax heads which are less sensitive to the economic cycle,” he said.

While supporting the Central Bank’s new mortgage rules, the ESRI said the way the measures are implemented should be looked at.