The closure of over 200 restaurants this year is leaving 'big hole' in State finances. 

The Restaurants Association of Ireland has today published a report by economist Jim Power probing the effects on supply chains and the job market. 

So far this year, 212 restaurants and cafes have shut their doors for good at an estimated cost of €288 million to the Irish economy. 

Speaking to Breakfast Business, restaurant owner Gina Murphy described it as a “heartbreaking” trend. 

“Obviously, if a restaurant isn’t generating income, it’s not paying taxes, it’s not paying staff contributions and PRSI,” she said. 

“It’s not paying any tax on profit, it’s not paying its VAT. 

“It’s a big hole in the State’s purse by us not contributing to it. 

“On top of that, the State then has to look after those people who’ve been made unemployed… So, it’s a double whammy for the State when a small business goes out of business.” 

COVID-19

Ms Murphy said the pandemic was “the most horrendous period of trading ever” but four years after the arrival of COVID-19 in Ireland, she feels many restaurants are still “not on our proper footing”. 

“It’s really rocky and most of us are not back trading seven days because people are working from home more - and we’re adjusting that,” she said. 

“But it’s the cost of everything that has really impacted us; for example, our utility bills - especially since the war in Ukraine - have skyrocketed. 

“My utility bills used to be about €4,000 every two months. 

“Last year, my average utility bill was over €14,000 - that’s just one extra cost that we’re bearing.” 

A table with a tip.

The pandemic also hastened the decline of cash usage and although the price of an item is the same however you pay for it, Ms Murphy said many businesses would prefer it if you did not pay with your card. 

“Now everybody taps but we have to pay for every tap that we receive,” she said. 

“So, although it’s income related, the charges have again skyrocketed.” 

Overall, Ms Murphy said many restaurants are simply “non-viable” given how precarious their operating margins are. 

“The average restaurant would work off maybe a 4-7% margin,” she said. 

“But now with everything, all the bites out of the cherry, with the rising costs of doing business, most are operating on 1-2%. 

“In any business, that’s not a good return.” 

A restaurant in Adare, County Limerick.

During the pandemic, the VAT rate for hospitality was cut from 13.5% to 9% to help businesses struggling with the collapse of international tourism. 

Last year, the rate returned to 13.5% and Ms Murphy said it has had a significant impact on profitability. 

“What people need to remember is the VAT rate is a tax on the consumer, not on the business,” she said. 

“However, it directly affects our pricing and by affecting our pricing we have to be very conscious of the fact that we are in a very competitive market because… there’s only so much I can charge for chicken. 

“There’s a time when a tipping point happens and, unfortunately, the VAT has been the tipping point in the restaurant business. 

“When we had to put up our prices, our sales went down - that’s just macroeconomics.” 

Ms Murphy urged the Government “get behind us” and said returning the VAT rate to 9% would "support local communities, local growers [and] local businesses".

Earlier this month, Fine Gael Senator Maria Byrne urged the Government to cut the VAT for SMEs as a matter of urgency.

Main image: Hugo's on Dublin's Merrion Row. Picture by: Louise Heusinkveld / Alamy Stock Photo