Pressure builds on Donohoe after UK cut Vat to boost pubs and restaurants in Covid-19 storm
Business groups are stepping up the pressure on Finance Ministre Paschal Donohoe to cut the Vat rate as part of this month's Covid-19 economic stimulus package after the UK this week slashed its Vat rate for food businesses.
Chancellor Rishi Sunak cut the Vat rate to 5% from 20% for food services in restaurants, cafes, and pubs, and for accommodation firms through to mid-January.
It was part of a £33bn (€36.7bn) in additional supports announced by Mr Sunak, which suggest that Minister Donohoe will need to announce measures this month of around €3.7bn to match the British response to the crisis.
Early in the crisis, the UK also ushered in bank loans that are 100%-guaranteed by the British state which have proved highly effective in injecting billions of liquidity into companies. However, Irish officials appear to be lukewarm about introducing 100%-guaranteed loans.
Gerard Brady, chief economist at Ibec, said the business group had submitted its thoughts to the new coalition on the shape of the stimulus package earlier this week, which includes cutting the Vat rate as a way of helping businesses. The biggest issue was securing an extension in the wage-subsidy scheme, he said.
New Revenue figures showed the number of employees availing of the wage-subsidy fell by 5,000 to 405,000 in the past week.
Isme chief executive Neil McDonnell said the economy will require stimulus measures, requiring "reducing the Vat rate, even if for a defined period of time".
"The SME sector is of systemic, irreplaceable importance to the State. It accounts for more than half of our Paye, Prsi, and USC collection while two-thirds of Vat collection is again from SMEs," Mr McDonnell said.
The Small Firms Association wants the 9% hospitality Vat rate restored up until the end of next year and an extension to the wage subsidy scheme.
The Irish Hotels Federation (IHF) and the Restaurants Association are calling for a reduction in the tourism and hospitality sector Vat rate to 5% from the current 13.5% rate. The IHF wants the 5% rate to apply to the end of 2021, after which, it said, it should settle at 9%.
Groups for the pubs and drinks trade want a Vat reduction to 9%. The Licensed Vintners Association and the Vintners Federation of Ireland have warned that 22,500 jobs could be lost and 7,000 pubs could struggle with restrictions after reopening.
Tom McDonnell, co-director at the Nevin Economic Research Institute, or Neri, said there was a logic behind any cut in Vat because it was designed to help businesses rather than boost demand, but that the costly initiative should be time-limited.
He said there would be better ways in time in October's budget to spend money on boosting new training and apprenticeships for young people who work in low-paid jobs likely to be hit hard by the crisis.
In the stimulus package, Neri favours extending the wage-subsidy scheme and wants bailout outs for transport companies and the universities.
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