Government may delay hospitality Vat cut to mid-2026 amid budget tradeoffs

A potential delay to the VAT reduction from 13.5% to 9% could free up nearly €1bn for other measures

Fianna Fáil junior minister Niall Collins pushed back on the proposal to cut VAT rates across the board, saying he would prefer targeted measures for businesses. File photo

The Government is considering whether to delay a Vat rate cut for the hospitality sector until July 2026.

Signals from within Government suggest there may be a delay to the rate cut, rather than introducing it at the beginning of next year.

One senior Government source said delaying the Vat reduction from 13.5% to 9% was “strongly mooted” ahead of the Summer Economic Statement.

Given finance minister Paschal Donohoe’s estimate that the rate cut would cost between €950m and €1bn per year, there would be significant extra funds available for other tax cuts in October’s budget.

The overall tax package in the October 7 budget is €1.5bn, with concerns raised earlier this week that workers could lose out due to the high cost of the VAT cut.

On Tuesday, Mr Donohoe warned that if VAT cuts were introduced for the hospitality sector, there would be “tradeoffs” and “consequences.”

While the cuts may be delayed, sources in Fine Gael said no decisions have been made ahead of the budget, with “various options” still on the table.

One Fine Gael minister said the rate cuts should be implemented on January 1, alongside other tax measures.

This comes as Fianna Fáil junior minister Niall Collins pushed back on the proposal to cut VAT rates across the board, saying he would prefer targeted measures for businesses.

Mr Collins questioned whether consumers would benefit from the cut, noting they did not during the previous Government’s VAT reduction during the covid-19 pandemic.

Speaking to RTÉ Radio, Mr Collins said the Vat cut was not a “done deal” and that the Government is still going through the budgetary process.

“I think that we have to have targeted interventions in a number of sectors. I do recognise that the hospitality sector is under pressure, that there are some jobs within the hospitality sector that are under pressure and we need to support,” Mr Collins said.

“I would like to see more targeted measures.” He added that an “across the board” VAT cut would not be targeted.