'Vat reduction not the answer': Michael McGrath doubles down on hospitality rate

It follows comments from the Taoiseach who recently said that a rate split was 'technically possible and warranted consideration'

Asked if he was open to considering changes later this year, Mr McGrath said the Budget was “a long way away” and that he did not want to raise expectations about what can or cannot be done in October. Photograph: Leah Farrell / © RollingNews.ie

Finance Minister Michael McGrath has doubled down on comments made last week stating that he would not revisit the contentious Vat rate for hospitality, despite recent comments from Taoiseach Leo Varadkar that a rate split was “technically possible and warranted consideration.” 

Speaking in Cork city on Friday morning, Mr McGrath reiterated that there were “no plans” to change the rate of Vat this year, despite calls from Fine Gael representatives for a lower tax rate on food services.

At its parliamentary party meeting this week, several Fine Gael TDs and Senators called on the Government to consider splitting the hospitality Vat rate and give the lower 9% rate to pubs and restaurants struggling to remain open.

According to one TD, Taoiseach, Leo Varadkar “confirmed that such a reduction is technically possible and it warrants consideration.”

However, when asked on Friday, Mr McGrath said he understood the Taoiseach was speaking about what may be possible in the next budget, which will be in October of this year.

“I don’t think a reduction in Vat is the answer,” said Mr McGrath. “The only way a reduction in Vat improves the viability of a business is if that reduction in consumer tax is not passed onto the consumer.” 

“The issue they [businesses] are raising with me, primarily, is around costs, and generally speaking, although January was a difficult time for many, demand has been quite strong in recent months.” 

The Finance Minister added that Revenue Commissioners raised concerns about a splitting of the rates and that his focus remained on implementing measures from Budget 2024.

Asked if he was open to considering changes later this year, Mr McGrath said the Budget was “a long way away” and that he did not want to raise expectations about what can or cannot be done in October. 

The Minister added the Government was in the process of finalising changes to the Tax Debt Warehousing regime, which he said was a “practical way” that he could help businesses struggling with their cash flow.

Asked if he thought the current rate of VAT for the food services sector was fair, Mr McGrath told the Irish Examiner that Ireland was 8th in European terms, adding that another EU six member states have a rate of 12-13%.

“14 member states have rates of 12% or above, so we’re not out of line. If you take Northern Ireland, Great Britain has a VAT rate of 20%.” 

“The Government has to reflect on the accumulation of costs imposed on businesses, many of them through direct Government policy decisions," the Finance Minister added.

“The aggregation of them have undoubtedly had a significant impact on many businesses and has coincided with a period for many where trading conditions are very challenging.” 

“For now, it’s about what we can do to help businesses in the short-term and we will be bringing forward measures on the tax debt warehousing that can be of help.”