Saturday, 28 September 2013

The Restaurant VAT Question

On Friday 20 September at 6pm I was at home having a quick coffee while listening to the RTE news before heading back to work in our restaurants. On comes that familiar droll voice of “Mr put everybody in a bad mood”, that’s Minister Noonan of course! And then, as cool as like he says, "I will be increasing the VAT rate in restaurants and hotels back to 13.5% and if you don't like that, you might tell me where I'm going to find the €360,000,000 its costing". First, I shouted at the radio, as if he could hear me and would listen to reason, then I sent a sharp and to the point text to my local TD, as if they could make him see reason, then I had a shower to cool off, as if that was going to help and then I went back to work.

I can speak as a restaurant owner who employs 40 people and tell you that increasing prices in the current economic climate is nothing short of commercial suicide. The restaurant trade in Ireland has suffered enormously during this recession and the last five years have been spent fire-fighting as we try to survive while the recession continued year after year. The reduction in VAT was a lifeline to many restaurants and any increase in taxes at this time will cost my industry dearly.

So what is going on?
Has the vat reduction cost Ireland Inc. €360,000,000 as Minister Noonan claims?  
Now remember, we have a government that spends vast amounts of money on advisors, studies and reports. A recent Deloitte report commissioned by Failte Ireland found that the VAT reduction created 13,499 jobs and when everything was accounted for the Exchequer saw a net benefit of €173,000,000! So it’s Happy Days Then? Well, not so, according to Minster Noonan who is still claiming its costing €360,000,000!

So can we take it that one of two things is going on?
Either the Minister believes Deloitte made a balls of their report and there are wrong in their findings or he is just telling porkies for his own political gain?

I recently asked a TD why their FG Minister for Finance was doing this and I was told “look, we’re politicians and this is what we do. He is just grandstanding and has no intention of increasing the Vat rate” you can make your own mind up on that sort of behaviour by our esteemed political leaders!

So let’s take it that the highly paid professional government advisors are indeed correct and the VAT reduction was a fantastic success, so what do we do now? Well to us mere mortals that would seem like a no-brainer! But for some bizarre reason our Fine Gael/Labour government would seem to have some sort of whacky alternative plan…….?

I despair!!!


(The Report) 

Annualised Assessment of the Impact of the VAT Reduction Measure
from 13.5% to 9%
Impact on Jobs *-1-
Employment in Accommodation & Food Services Sector Q2 2011 (70% of sectors benefiting from VAT intervention)
Employment in Accommodation & Food Services Sector Q2 2012 (following VAT reduction)
Employment Growth within 70% of sectors (benefiting from VAT reduction)
Employment Growth for 100% of sectors
Employment Contraction in similar services sectors over the period
Retention impact of VAT measure on 108,300 jobs over the period in 70% of sectors (benefiting from VAT reduction)
Retention impact of VAT for 100% of sectors
Total Jobs Created and Retained over 12 month Period in 100% of sectors benefiting from VAT intervention
Annualised Impact on Exchequer Finances
Average Annual Earnings in Accommodation & Food Services Sector *-2-
€ 26,500
Tax Payable (PRSI, USC, PAYE)
€ 4,280
Total Tax Payable
€ 57,775,720
Employers PRSI
€ 30,410,000
Total Employment Tax Raised
€ 88,185,720
Social Welfare Saving *-3-
€ 173,500,000
Total Saving
€ 261,685,720
Increased Economic Activity *-4-
Employers investment in new job salaries
€ 234,710,500
Assumed growth in sales based on reduced VAT rate and lower price to consumers – 300% of salary investment
€ 704,131,500
Additional VAT collected at 9% rate on increased consumer spending
€ 63,371,835
€ 325,057,555
This analysis does not take account of the increase in spending derived from €234m in new salaries created in the economy or the reduced spending incurred from €123m in lost salaries suffered without this intervention.
*-1- Department of Finance "Measuring the Impact of the Jobs Initiative - was the VAT reduction passed on and were jobs created"
*-2- CSO Earnings Hours & Employment Costs Survey (EHECS)
*-3- CSO Quarterly National Household Survey
*-4- REI assessment of additional VAT received based on increased economic activity

1 comment:

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