With Budget 2026 days away, a big decision looms on promised cuts to hospitality VAT. Political battle lines between Fianna Fáil and Fine Gael are clear enough. But the mandarins who do the technical work seem to be in the dark on one of the most salient questions.
At issue is whether and VAT cut might be passed through to the bedraggled consumer. This is critical. If the objective is to spur trade in cafes, restaurants and bars, the Government would need some comfort that that is in prospect. Or so you might think.
Cue a parliamentary question to Minister for Finance, Paschal Donohoe, from Malcolm Byrne, the Fianna Fáil TD for Wicklow-Wexford. Byrne asked about research on “whether VAT cuts made in recent years were passed on to the consumer”.
Donohoe said “no specific research has been undertaken” by the Department of Finance, although prices in the wider economy are monitored.
This is intriguing. The department knows the cost of cutting VAT to 9 per cent from 13.4 per cent – €870 million in a year – but not who might reap the benefit.
Not, that is, until the Irish Fiscal Advisory Council (Ifac) presented research this week. It showed “VAT rate increases being passed through more than VAT rate cuts”. No surprise.
Ifac also noted “higher pass-through rates for hairdressing services than food and catering services”.
Moreover, Ifac found the projected VAT measures would cost the same as a €3,000 increase in standard rate income tax bands, hiring 11,400 nurses or 7,800 teachers.
Jack Chambers channels 'Margaret Thatcher' as 'big squeeze budget' looms
Now for the politics. The Programme for Government binds Ministers to “bring forward measures” including “changes to VAT” to support hospitality and retail.
Fine Gael seems wedded to this “solemn” commitment, as Tánaiste Simon Harris puts it. But there is no little anxiety in Fianna Fáil that VAT measures would blunt the scope for any income tax cuts. Micheál Martin’s party also worries about five-star hotels and big fast-food brands gaining more than voters.
How this plays out will become clear over the next couple of days. For now, on the prickly question of VAT pass-through, the Department of Finance will have to take Ifac’s word.
