Irish Restaurants Face VAT Cuts Amid Claims of Crisis

The Irish government is poised to lower the Value Added Tax (VAT) rate for the food sector from 13.5% to 9% in its upcoming budget. This reduction is expected to decrease the state’s tax revenue by between €550 million and €700 million annually. While this significant financial shift aims to support the restaurant industry, the rationale behind it raises important questions regarding the extent of a supposed crisis in restaurant closures.

The primary argument for the VAT reduction stems from claims made by the Restaurants Association of Ireland (RAI), which asserts that approximately 600 restaurants are closing each year, equating to about two closures per day. The association attributes this trend to the restoration of the 13.5% VAT rate in September 2023, suggesting that a reduced rate would help mitigate further closures.

Yet, the context surrounding these figures is critical. A recent report from the RAI itself indicates that while the restaurant sector is indeed facing pressure from rising operational costs, this does not necessarily equate to a surge in closures. The Central Statistics Office (CSO) recorded 1,662 food and beverage closures in 2019, with 1,695 openings during the same period. This suggests a dynamic market where closures can occur alongside new openings.

Questioning the Closure Claims

The RAI’s statistics on restaurant closures, while alarming at first glance, lack comprehensive context. The association does not track the number of new establishments opening, which complicates the assessment of net changes in the restaurant landscape. As noted by industry expert Mr. Foley, the RAI’s figures represent gross closures and do not account for openings, leading to a potentially skewed perception of the industry’s health.

Moreover, the CSO data reveals a gradual increase in the number of food and beverage businesses, rising from just under 18,000 in 2014 to over 20,000 in 2022. This growth occurred despite the RAI’s warnings of widespread closures during the same period. Employment in the sector has also remained relatively stable, indicating that the so-called crisis may not be as widespread as suggested.

Alternative Support for Ailing Restaurants

While many smaller restaurants may be facing genuine challenges, there is a growing sentiment that targeted support could be more effective than a blanket VAT reduction. Conrad Howard, owner of the Market Lane Group in Cork, advocates for a VAT cut that focuses on businesses sourcing a significant portion of their supplies from local and regional suppliers. This approach would ensure that any financial benefits from the reduction support community-oriented establishments.

The RAI argues that a broad VAT reduction is more effective than grants, which can be cumbersome to access and lack permanence. Yet, the financial implications of such a broad cut—estimated at between €550 million and €675 million annually—merit careful consideration, especially given the uncertain need for such a drastic measure.

As discussions around the VAT reduction intensify, the fundamental questions remain: Are restaurant closures exceeding normal rates, and if so, will a VAT cut effectively address the issue? Until more comprehensive data is available, policymakers face the challenge of balancing support for the restaurant sector with fiscal responsibility, ensuring that any measures taken address actual needs rather than projected fears.

In conclusion, while the concerns of small restaurant owners are valid, the absence of robust evidence indicating a crisis warrants a more nuanced approach to support. The current statistics suggest that the restaurant sector is not in the perilous state that some advocates claim, highlighting the need for a data-driven approach to policy decisions affecting this vital industry.