AS I SEE IT
BY MARIANNE HERON
It’s an odd feeling when you are understanding something to mean one thing and others think that its meaning is quite different. The reduction of the VAT rate for restaurants and cafes from 13.5% to 9% in Budget 26 is a case in point.
Call me innocent, but I believed that it meant that the occasionally cup of coffee with a friend might cost a bit less and restaurant bills, on the few times I eat out, might be less painful.
That’s not what Peter Burke, Minister for Enterprise, Tourism and Employment, meant at all. No, he pointed out that the reduction was to “inject viability” into the sector, dismissing concerns that the reduction would not be passed on. “It’s up to businesses what they charge,” he said. No prizes then for guessing that owners of restaurants and cafes will be trousering the 4.5%, if new increases in costs don’t eat it up.
What is the VAT – a tax collected by businesses charged to customers and passed on to the Government – about in this case? According to Burke the reduction, which also applies to hairdressers, “is a stimulus measure” which is going to cost €232 million from July 2026 when the reduction comes into effect and €681m. in 2027. That’s money that we, the taxpayers, are doing without in a Budget without one-off payments to help with the cost of living crisis.
A better use of the money might have been a reduction in the cost of childcare especially when fast food multiples will be the main beneficiaries of the reduction.
My question is whether using money to prop up businesses which aren’t viable is a sensible use of resources? Of course we need restaurants and cafes to cater for the tourism sector and local communities but at what price to the consumers and us tax payers?
On a personal note, family visiting from overseas on a brief tour around Ireland ate out just once, as prices were such a shock they self-catered in their camper van for the rest of the visit. It goes against the grain with me, to pay an amount which would cover the cost of making dinner for two at home for a tepid cappuccino. I can swallow prices where the experience is pleasant and the quality is good, but too often this isn’t the case.
The food hospitality sector, which accounts for 9% of employment, has been lobbying for change ever since the VAT rate went back up again after a reduction during Covid, citing the number of closures of 612 restaurants cafes and gastro pubs since then. The food side of the hospitality trade, like the rest of us, has been suffering from rising costs, with food prices galloping ahead of the rest of inflation.
But the biggest increases for them have been in costs added by Government measures on employment relating to living wage, sick pay and with auto enrolment pension coming in next year. These increases are more than double the increase of materials in an industry with the lowest wages at of any sector at €19.47 an hour and where often profit margins have been cut to as little as 2%.
How likely is this ‘viability measure’ to keep cafes and restaurants open? Not very, it seems. Studies show that half of those that open close within five years. It’s a Catch 22 situation – if restaurant and café prices go up fewer people go and if they don’t go up venues go out of business.
Maybe a different approach is needed. Measures to improve quality in food hospitality might help or giving tourists vouchers towards the cost of a meal (and why not the rest of us too!) Tackling rising costs, particularly energy costs would help. Price gouging gets mentioned in Government without any action being taken to curb eye-watering bills where a recent study showed that energy providers were charging consumer three times the wholesale price for electricity.
How about a TV programme, like BBC2’s Mary Queen of Shop for cafés and restaurants or a regular newspaper column doing the same job? The original retail consultant, Mary Portis, helped fashion boutiques improve their overall viability and branding, putting them back on their feet.
I can see it now, ’Kevin King of cappuccinos’.
I notice two new cafes have opened near me – good luck to them.
