Coalition Tensions Rise Over VAT Cuts in Controversial Budget

A contentious proposal included in the upcoming Budget has sparked significant disagreements within the Coalition government in Ireland. The proposal, which involves a VAT cut for the hospitality sector, has been agreed upon by Taoiseach Micheál Martin and Tánaiste Simon Harris, but it has drawn criticism from various quarters within the administration.

The hospitality industry is set to benefit from a reduction in VAT from 13.5% to 9% starting in July 2024. While this change is expected to assist numerous businesses, hotels will be exempt from this reduction. Notably, large franchise operators such as fast-food chains will be included in this measure. According to sources involved in the Budget negotiations, the VAT cut is projected to cost the Exchequer approximately €250 million this year.

Internal Disagreements and Political Capital

Some Coalition members have voiced their concerns regarding the decision, suggesting that the political capital expended on a measure unpopular with many is considerable. A Cabinet source remarked, “The political capital expended on a measure unpopular with just about everybody except Harris and [Enterprise Minister] Peter Burke is extraordinary.” This sentiment reflects a wider unease among ministers who believe that the VAT cut could hinder any significant tax relief for the general public.

Critics within the Coalition, including Public Expenditure Minister Jack Chambers, have previously opposed such measures. Chambers, who had expressed his reservations during last year’s Budget talks, is joined by Finance Minister Paschal Donohoe, who has historically questioned the viability of the VAT cut. Concerns are growing that the proposed measure could impede the chances of either Fine Gael candidate Heather Humphreys or Fianna Fáil candidate Jim Gavin in the upcoming presidential election.

Key Features of Budget 2026

Despite the controversies surrounding the VAT cut, the Coalition has pledged that Budget 2026 will prioritize modesty over austerity. Among the expected features are a permanent reduction of €500 in college fees and an extension of the Renters Tax Credit, which will now continue at a cost of €350 million. Additionally, there will be a Christmas bonus for welfare recipients, highlighting an effort to provide some relief to vulnerable sectors of society.

However, many anticipate that the overall impact on working individuals could be minimal. The absence of changes to income tax and the Universal Social Charge (USC) is expected to result in a loss of approximately €1,000 per taxpayer, while the government stands to gain €2 billion from maintaining the status quo. This situation raises concerns for pensioners and welfare recipients, who may see minimal increases in their payments, if any.

As the government approaches the finalization of the Budget, the internal struggles within the Coalition suggest that the path forward may be fraught with difficulty. The anticipated focus on the hospitality sector and the associated VAT cut could overshadow other critical issues, leaving many working individuals and families wondering what relief, if any, they can expect in the coming fiscal year.