Food businesses welcome 'long-fought' Vat reduction while wet pubs say Budget 2026 'failed to deliver'
The Vat reduction followed a long campaign by hospitality businesses and lobby groups who have argued that a rate decrease was essential to help a struggling sector operating on razor-thin margins. PIC: NO FEE, MAXWELLS
The Restaurants Association of Ireland has welcomed what it has called a "long-fought victory" for the industry following the Government's decision to reinstate a lower rate of Vat for the sector.
Finance minister Paschal Donohoe announced that the Vat rate for food and catering businesses would be reduced from July 1, 2026 to 9% from 13.5% as part of this year's budget. Mr Donohoe said that this measure will cost €232m in 2026 and €681m in a full year.
It followed a long campaign by hospitality businesses and lobby groups who have argued that a rate decrease was essential to help a struggling sector operating on razor-thin margins.
More than 200 Irish restaurants have closed in 2025, with the RAI previously warning of further closures and job losses if the Government failed to urgently act.
Speaking on the announcement, chief executive of the RAI, Adrian Cummins said: "The return of the 9% Vat rate is a welcome and long-fought victory for our industry. It will play a key role in safeguarding jobs, supporting SMEs, and maintaining Ireland’s global reputation for hospitality and food tourism.
"This could be the difference between some businesses continuing to offer employment and, importantly, a revenue stream to the exchequer.”
However, the CEO noted that the first six months of next year, before the lower rate is reinstated, will remain difficult for an already struggling industry.
As part of Budget 2026, the Government also announced a 65c hike to the national minimum wage, bringing it to €14.15 on January 1, 2026. Many restaurants fear the rise, which is being introduced in tandem with the roll-out of pension auto-enrollment, will "cripple businesses" in the new year.
"We must be clear, July 2026 is too far away for many businesses already on the brink," Mr Cummins continued.
"The combined impact of a significant minimum wage increase and the rollout of pension auto-enrolment in January will place unbearable strain on food-led hospitality businesses, many of which are small, family-run enterprises operating on razor-thin margins.”
Meanwhile, the Irish Hotels Federation (IHF) has also welcomed the reduction in Vat, with President Michael Magner calling the cut a "crucial intervention" for struggling food service businesses."
"This measure goes a long way toward putting Irish tourism on a more stable footing, aligning Ireland’s Vat rate for hospitality food services with the majority of our European competitors."
The IHF is calling for the Vat reduction to be made permanent to provide "greater long-term certainty to those businesses that are heavily reliant on food services.”
Speaking to the Mr Magner said the reduction, which was initially proposed to include accommodation as well as food businesses before the budget cycle, said the move will affect rural businesses that are most reliant on food services.
"This marks a 4.5% reduction, which offsets the hike in minimum wage that we will also see next year."
Asked if consumers will see the Vat cut passed through to them, Mr Magner said: "Every business will make that decision for themselves. Businesses across the country are looking forward right now to see what they can absorb and what they cannot.
"Some will be able to afford to pass it on, but for those smaller, family-run businesses in rural Ireland, it is a very different story."
While today's budget offers relief for many restaurants, wet pub owners across the country have sharply criticised today's announcement, with the Vinters' Federation of Ireland (VFI) saying it "failed to deliver" for the thousands of traditional pubs it said are now "fighting for survival."
The VFI had previously called for a 40% excise rebate for all draught products sold in the on-trade, which it said would support rural pubs facing unprecedented cost pressures.
However, the federation said these calls were ignored by the Government, with CEO Pat Crotty adding: "This budget is a bitter blow for traditional publicans, even allowing for the vital reduction in the hospitality Vat rate.
"Food-led pubs must somehow survive the hardest months of the year without the Vat support they were promised, while the thousands of traditional pubs, which don’t serve food and form the backbone of rural Ireland, get absolutely nothing."
Mr Crotty added that the Government "missed a clear opportunity to support struggling, community-based businesses through the Draught Excise Rebate, a fair, on-trade-only measure that would have kept doors open and jobs protected."
"Instead, those pubs are left exposed to relentless cost pressures," the CEO continued.
The VFI is calling on the Government to bring the Vat cut forward to January 2026 and urgently revisit a Draught Excise Rebate as part of any cost-of-business package.
Meanwhile, the Licensed Vintners Association (LVA) also said the Vat cut was a welcome decision, but hit out at the Government's decision to ignore the cost of Special Exemption Orders (SEOs), which are needed to allow a pub or nightclub to open beyond standard licensing hours.
"A cost of €205 plus solicitor fees has been imposed for every single night a licensed premise that wishes to extend their operating times by up to two hours. For a venue opening late three nights per week, that amounts to almost €32,000 (plus solicitor fees) per year," the LVA said.
The LVA also expressed their disappointment that the excise rate was not reduced in the budget and remains at “amongst the highest levels in the EU”.
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