Tax cut for food businesses squashed at the Dáil

A motion to decrease the VAT rate for small and medium food businesses in the hospitality sector to 9 per cent was struck down at the Dáil on Wednesday.

The motion, introduced by Galway West TD Noel Grealish, was overturned by a 73-64 vote in favor of excluding it from the amendment.

Galway East TD Seán Canney voted in favour of the reduction for small and medium enterprises (SME) and was surprised that the government did not respond to it.

“I think what we had there was all very reasonable and realistic,” he said.

He also expressed disappointment at the absence of Minister for Enterprise, Trade and Employment Simon Coveney at the debate.

“That was a bit disrespectful, dare I say.”

Budgetary constraints

“We . . . have to operate within a budget, and within the parameters of a budget laid down here last October,” said Minister for Enterprise, Trade and Employment and Fianna Fail TD Dara Calleary arguing against the VAT decrease.

He pointed to the increased burden scheme as example of government supports to SMEs, saying the scheme “will invest more than €250m in small businesses over the coming quarter.”

“We stood by business and stood up supports, and we will continue to do so,” he said.

However, Independent TD Verone Murphy pointed out at the debate that despite the sitting government’s insistence that the budget be followed, they had allowed the reduction of the interest rate on warehoused tax debt to zero per cent last week.

“I ask the Minister of State to seriously consider this [motion] and to bring it back to the Government,” she said. “The Government should not play politics with people who are struggling.”

Mr Canney said that while the VAT rate reduction was overturned, it was by a margin of fewer than ten votes, which reflects its urgency.  

“They [The Government] have got a bit of a shock at the vote.”  

Compounding burdens

The reduced VAT rate of 9 per cent for businesses in the hospitality sector was introduced in November 2020 in response to the COVID-19 pandemic and lasted until August 2023.

ISME – the independent Irish Small and Medium Business Association, which includes upwards of 10,500 members – opposed the restoration of the original, higher VAT rate of 13.5 per cent.

“The retention of the 9 per cent [VAT] was essential to the survival of many businesses in the sector,” said Damien Heffernan, Marketing & Partnerships Manager at ISME.

He called the challenges SMEs now face under the 13.5 per cent VAT rate “entirely predictable,” and a direct result of government policies.  

Galway’s Quays Bar and Restaurant manager Paul Walsh called the 2020 reduction “very welcome,” and said that he believed it was cancelled prematurely.

“We still haven’t recovered from pre-COVID levels,” he said.  

“You can feel it around Galway: it’s a little bit quiet, and lunch trade has dropped off.”

According to Mr Walsh, businesses have faced an additional burden in the form of a minimum wage increase since January 2024. He said that food establishments in Galway have yet to increase prices in accordance with rising costs, but may be forced to by Summer.  

“If the VAT reduction would come in, it would encourage people to go out a bit more, because bars and restaurants wouldn’t feel this pressure to increase prices.”

Actionable help

According to Mr Canney, the government plans to conduct more research and share it with the private members group at a later date.

“At this stage,” he said, “It’s a necessity that small businesses in this country be supported, rather than talked about or researched.”

He said that the group plans to meet with Minister Coveney to find actionable ways to help struggling SMEs.

“We won’t let the matter go away,” he said.