Bringing back the 9% VAT for hospitality would cost “well in excess of €700 million”, the Public Expenditure Minister has claimed.

Paschal Donohoe was speaking after Michelin star chef Dylan McGrath shut down two of his restaurants in Dublin city centre.

He said rising costs and economic pressures meant that it was “simply not sustainable” to keep Brasserie Sixty6 and Rustic Stone open any longer.

Brasserie Sixty6 has been trading for 25 years, while Rustic Stone has been open for 15 years.

Restaurant closures

That came after the Restaurants Association of Ireland (RAI) warned that over 570 have been forced to close their doors since the Government hiked the VAT rate for hospitality to 13.5% last September.

It said a recent survey had found that 74% of its members believes they will have to close their businesses if the VAT rate is not returned to 9%.

VAT

Speaking yesterday Minister Donohoe appeared to pour cold water on any hopes the reduction will be announced in this year’s budget.

“A decision with regard to the 9% VAT rate would have a cost well in excess of €700m,” he said.

“When it was last brought down, it was brought down at a time our hospitality sector was either closed or was barely able to function because of public health regulation.”

He suggested cutting the VAT rate would leave the Government unable to roll out tax cuts for workers.

“I recognise how demanding it is to run a small business in the hospitality sector,” he said.

“But what the Government will have to do is look at the many competing pressures we have with regard to how we spend money and allocate resources on budget day and make the best decision overall.

“We are also in a position where we are seeing wages grow in our economy and if we don’t make changes with regard to our personal tax code on budget day, we will see many people paying a higher rate of USC and a higher rate of income tax just because their wages are going up due to their own work.”

Split rate

The Tourism Minister has previously said the hospitality rate could eventually be split – leaving hotels paying a different rate than pubs, restaurants and cafés.

It is understood officials are examining the change; however, it will not be introduced in the short term and certainly not before the budget.

Were the rates to be separated, the Government could cut VAT for pubs, restaurants and cafés at a much lower cost to the Exchequer.

The hospitality VAT was originally reduced to 9% in July 2011 due to the financial crash.

It remained at that rate until 2019 before being reduced again when COVID hit.

The return to 13.5% was announced in last year’s budget and implemented in September.