"The proposed Vat rate cut for hospitality businesses will cost the equivalent, per year, as increasing the standard rate income tax bands by €3,000, hiring 11,400 nurses or recruiting an extra 7,800 teachers, the Irish Fiscal Advisory Council has warned. While the Fiscal Council, headed by economist Seamus Coffey of University College Cork, does not comment directly on individual budget measures the timing and language of the report will inevitably be seen as a blunt warning to Finance Minister Paschal Donohoe."
"Using Vat changes as an economic lever are very expensive, the White Paper notes. "As a result, it is important that policymakers are informed about the impacts that these policy changes have on the macroeconomy," the council said in a new working paper. The paper examines the so called 'pass-through' to consumers of a number of temporary Vat reductions and restorations that have benefited the Irish hospitality and tourism industry as well as other sectors like newspaper producers since 2010."
The Irish Fiscal Advisory Council calculated that reducing the hospitality VAT rate from 13.5% to 9% would cost €870 million annually. That cost is equivalent to increasing standard-rate income tax bands by €3,000, hiring about 11,400 nurses, or recruiting roughly 7,800 teachers. The council emphasised that VAT changes are an expensive economic lever and that pass-through to consumer prices varies with the direction of the tax change and broader economic conditions. Historical findings show a 50% pass-through after a 2011 VAT reduction, an 88% pass-through after a 2019 VAT increase, and lower pass-through for 2020 and 2023 changes.
Read at Irish Independent
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