The Government has made a “solemn” promise to cut the VAT rate for hospitality in the budget, Simon Harris has said, addressing the National Economic Dialogue, an annual forum where lobby groups, representative bodies and charities make their pitches for the budget.
Speaking at the same event, Minister for Finance Paschal Donohoe warned that the near-term economic outlook was “clouded in uncertainty”, which was weighing on consumer and business spending, and this was likely to continue until there is clarity regarding tariffs.
The Tánaiste went on to say, however, said that the commitment to reduce costs for the hospitality industry in Budget 2026 would cost money. In playing down the possibility of little to no tax cuts, he said that the Government can find alternatives to tax cuts to reduce the cost of living for the general public.
“No decision has been made in relation to any matter in the budget yet. Other than, it is a statement of fact to say that Government has given very clear and specific commitments in certain areas and those commitments have to be paid for,” Mr Harris said.
“So when you say you’re going to reduce the VAT rate for the hospitality sector, that costs a significant amount of money. We’re very serious about that pledge, it was a solemn commitment because it’s not about a tax cut for businesses, it’s about recognising that in every town and every village there are small businesses creating employment that want to be able to keep going and need to be supported.”
Mr Donohoe’s address laid out the State’s current economic backdrop and the headwinds it faces, pointing out that the impact of tariffs on consumer and business spending has led the Government to revise down its forecasts for this year and next.
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Modified domestic demand, which focuses on output in the domestic economy by stripping out multinational activity, is now projected to grow by 2.5 per cent this year and by 2.75 per cent next year.
In the event existing tariffs were to remain in place, growth in modified domestic demand would be around 1.5 percentage points lower by the end of next year relative to the baseline scenario.
Mr Donohoe will alsopointed out that the recent period of heightened inflation “has passed”, with prices “now increasing at rates consistent with price stability”, but admitted that the price level “is now higher”.
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More broadly, Mr Donohoe said we are now navigating a markedly different economic environment compared with recent decades, one shaped by “economic fragmentation and heightened geopolitical tensions”.
“This shift has significant economic implications, not just for trade, but for investment flows and long-term economic resilience,” he said.
“Tariffs are a symptom of this new normal. Their re-emergence is worrying – taxes on imports lead to higher prices for businesses and consumers and create disincentives for firms considering long-run investments.
Mr Donohoe also pledged to use the money from last year’s Apple tax ruling in the Court of Justice of the European Union to invest in the State’s stock of infrastructure, particularly in the areas of housing, energy, water and transport.
“We know that these revenues are once-off and must not be squandered. They must be deployed in a transformative way – in a way that mobilises private capital such as inward investment. This is how we will maximise the return to the taxpayer on these funds.”
Looking at the fiscal parameters, Mr Donohoe said that Ireland’s headline surplus, which exceeded €25 billion last year due to the Apple money, “masks considerable vulnerabilities”.
“Much of the headline balance arises from a handful of large multinationals and, as I mentioned, the mood-music is changing,” he will say. “It is not appropriate – indeed it could be dangerous – to plan on the basis of these receipts being permanent.”
