Vat rate of 9% for hospitality sector unlikely to return in October budget

It is understood Finance Minister Jack Chambers is not keen due to the €535m cost

Within Government, there is some belief that it would be a mistake to give a tax break to restaurants, hotels, and pubs at a time when inflation is below 2%.

A return to the 9% Vat rate for hospitality in October's budget is considered unlikely, despite Fine Gael's lobbying for the move.

Representatives of the hospitality industry have met with members of both Fine Gael and Fianna Fáil, campaigning for the return of the lower rate, which expired in September 2023. 

The lower rate was re-introduced during the pandemic to help struggling businesses and later extended to help them deal with rising inflation and the cost-of-living crisis.

While Fine Gael's Enterprise Minister Peter Burke has signalled his intention to fight for the lower rate, it is understood that Finance Minister Jack Chambers is not keen on the idea due to its cost — €535m — and where else that money could be spent. 

Within Government, there is also some belief that it would be a mistake to give a tax break to restaurants, hotels, and pubs at a time when inflation is below 2% and the Government has signalled that there will be no major cost-of-living package for the public.

There is some sympathy for the hospitality sector, however, within Government, and sources said that there will be a "significant" support package for businesses across the board in the budget.

Finance Minister Jack Chambers will announce the summer economic statement next week.

Representatives of the Irish Tourism Industry Confederation, Restaurants Association of Ireland, Vintners Federation of Ireland, Irish Hotels Federation, and Licences Vintners Association met with members of the larger coalition partners and sources said that the Fine Gael meeting was "one of the most well-attended briefings" that the party has received. 

A Fine Gael source said that "around 90%" of the parliamentary party is in favour of the lower rate being reinstated. 

While one source accepted that the reinstatement is not likely to happen, another said that Taoiseach Simon Harris should "find a way to make it happen".

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At the Fine Gael meeting, it was pointed out that the Government had given €252m to businesses through the Increased Cost of Business grant and that this would represent around half of what was needed to fund the Vat cut. 

However, senior government sources said that this grant is not planned to be continued, so the money was in effect not in the next budget.

Negotiations around the final shape of the October 1 budget will begin to intensify after next week's announcement of the summer economic statement by Mr Chambers. 

Government sources from all three coalition parties said that there will be competition for spending as this is the last budget before a general election.