Budget to hike hotel Vat rate to 11%

The 9% Vat rate on hotels, B&Bs, and restaurants is to increase by at least two percentage points in next week’s budget, in a bid to raise over €520m, the Irish Examiner can reveal.

Amid tense negotiations between Fine Gael and the Independent Alliance, Finance Minister Paschal Donohoe is resisting calls to limit the increase to larger hotels in Dublin, Cork, and Galway, who some ministers say have “disgracefully” sought to gouge customers.

The retention of the 9% Vat rate has been in doubt for some time amid reports of city-centre hotels charging in excess of €300 a night per room while benefiting from the reduced Vat rate.

The alliance — comprising Shane Ross, Finian McGrath, John Halligan, and Kevin ‘Boxer’ Moran — is said to be “deeply unhappy” at Mr Donohoe’s proposed hike on all parts of the tourism sector.

Alliance members sought to have a levy imposed on larger hotels charging over €150 per room per night, but Mr Donohoe ruled that out, according to sources.

Mr Donohoe and his officials have said it is not possible to target those larger hotels by themselves, and is looking to increase the Vat rate — lowered in 2011 to stimulate the sector — across the board.

This means hotels, large and small, guesthouses, B&Bs, restaurants, and bars will now be hit by a Vat rate of at least 11%.

This was only ever a temporary measure to help a struggling sector,” said one Fine Gael minister. “It has clearly worked and the money is more useful elsewhere now. The public will understand that.

The Irish Examiner understands that targeting the Vat increase at large hotels only would raise about €150m next year, but Mr Donohoe is adamant the whole sector will be hit, in order to raise €526m to pay for increased spending plans.

A full reversal of the Vat rate to 13%, according to Government sources, would raise in excess of €600m, meaning to achieve the €526m target, Mr Donohoe is looking at increasing it to 11%.

Tensions are also high over demands from Mr Ross that Mr Donohoe exempt the elderly from the local property tax.

Some ministers have been quick to point out that, if the elderly are exempted, other groups would also seek to be excluded.

What about the disabled, the poor, and the sick? If we start exempting, there will be nobody left paying it except the poor buggers in the middle,” said one minister.

It is understood that Mr Donohoe is considering lowering the rate of 0.18% on the first €1m in value of a property in order to prevent large spikes in charges because of the rise in property prices since the tax was introduced in 2013.

Mr Donohoe is said to have annoyed many of his colleagues by refusing to detail how much extra money he will have to spend because of greater-than-expected corporation tax receipts.

It is understood such windfalls will be used to plug the 16th health overspend in a row — this is expected to be in the region of €600m, as opposed to being closer to €1bn, as reports had suggested.

It is likely the Health Department will receive an additional €200m to pay for new measures in 2019, including the provision of abortion services and expanding mental health services, as demanded by Fianna Fáil.

The Government is also set to double the gambling tax as part of next Tuesday’s budget.

The proposal will raise an estimated €50m per year and some of that money will be directed into addiction services to treat gambling addicts.

Mr Donohoe is set to include the measure as part of his €3.4bn giveaway budget — the gambling tax will represent a significant victory for the Independent Alliance, which had called for it.

The alliance argued for the gambling tax to increase from 1% to 2%, which would generate €50m.