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!!!
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)
|
108,300
|
Employment in Accommodation
& Food Services Sector Q2 2012 (following VAT reduction)
|
114,500
|
Employment Growth within 70%
of sectors (benefiting from VAT reduction)
|
6,200
|
Employment Growth for 100% of
sectors
|
8,857
|
Employment Contraction in
similar services sectors over the period
|
3%
|
Retention impact of VAT
measure on 108,300 jobs over the period in 70% of sectors (benefiting from
VAT reduction)
|
3,249
|
Retention impact of VAT for
100% of sectors
|
4,642
|
Total Jobs Created and
Retained over 12 month Period in 100% of sectors benefiting from VAT
intervention
|
13,499
|
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
|
TOTAL EXCHEQUER BENEFIT
|
€ 325,057,555
|
PLEASE NOTE -
|
|
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.
|
|
SOURCES -
|
|
*-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
|