Today in the NI Assembly’s ’Opposition Day’ debate the SDLP will propose a motion on devolving VAT on hospitality to ‘support the sector’ 13 May 2024 (niassembly.gov.uk)
Explaining why this is a badly-thought out proposal which should be rejected by MLAs, ICTU Assistant General Secretary Gerry Murphy said
Reducing VAT on hospitality is a misguided policy that will not achieve any of its aims over the long term. We have seen from the experience of the Republic of Ireland that such a policy quickly becomes enormously expensive with extremely limited benefits that accrue almost exclusively to higher income households.
It is estimated that the reduction in VAT in the Republic of Ireland has cost the exchequer over €3.6bn in lost revenue since its introduction. As far back as 2018 the Irish Government Economic and Evaluation Service (IGEES) advised that the
The scale of these costs against the limited benefits point to significant deadweight.
The policy does not offer value for money.
The Republic’s Commission of Taxation and Welfare in 2022 noted that
temporary VAT reductions are costly, can lead to higher price levels when not passed onto customers and significant deadweight costs.
They also noted that
benefits fall largely to households with higher levels of disposable incomes, to the extent that such reductions are passed on to customers at all.
Indeed the 2018 IGEES report found that
a variety of profit indicators – profit shares, profit margins and price mark-ups – suggest that that profits have increased strongly in a majority of 9% rate sectors over time.
The Commission also references the IMF who report that rather than reducing prices,
lower rates for items such as purchases mat restaurants, hotels and cinemas likely work in the opposite direction. There is also international evidence that such VAT reductions are ultimately more likely to benefit business owners than consumers.
There was limited evidence of a positive impact on employment in the sector affected by the VAT reduction in the first year but as the IGEES report notes,
in subsequent years it was not possible to attribute employment gains specifically to the 9% VAT rate.
