“More closures are imminent”: Independent TDs call for VAT reduction for local cafes, restaurants, and pubs

The Independent Regional Group of TDs, have called for a reversal of the recent hike in VAT rate for food businesses after the Restaurants Association of Ireland reported that 612 food businesses have closed in the last year.

“The Government’s decision last September to increase the VAT rate from 9 per cent to 13.5 per cent has had a devastating impact on the hospitality sector, particularly small and medium-sized enterprises,” the Regional Group of TDs said, warning that “more closures are imminent if immediate action is not taken.” The TDs, including Deputy Matt Shanahan and Deputy Verona Murphy, acknowledged the importance of small businesses, describing them as the “backbone of local economies” but said “they are struggling under the weight of rising costs and Government-imposed charges.”

“SMEs represent a critical pillar of the Irish economy, accounting for 99.8 per cent of active enterprises and employing more than 1.2 million people," they said. While the TDs acknowledged that reducing the VAT rate back to 9 per cent would cost the exchequer approximately €500 million in tax revenue, they said: "This is about more than just numbers; these are businesses that play a vital role in our communities. Every pub, cafe, and restaurant that closes represents lost jobs, reduced economic activity, and a blow to local culture.

“Government policies have significantly increased the cost of doing business for SMEs, particularly in the hospitality sector. From energy price hikes to rising insurance premiums, labour costs, and the 50 per cent VAT increase, food businesses are being pushed to the brink. The average restaurant now faces €100,000 in additional costs compared to 2023. This situation is unsustainable.” 

Speaking to Waterford News & Star, Matt Shanahan TD, said the increased VAT rate was another increased cost for small retailers and food businesses: “The people were most affected [by the increased VAT rates] are the people in the food and restaurant game – hospitality - because their input prices had already risen so dramatically after Covid. They experienced a 30 per cent in their inputs.” 

“These guys are all struggling to retain a margin and to remain competitive at the same time, and then the Government decides to slap on the minimum wage increase," said Deputy Shanahan. "Now next year, we'll have the pension [auto-enrolment] for the employers.” Independent TDs brought a motion to the Dáil on the VAT rate and its impact on food businesses in June. The motion highlighted the struggles of small and medium businesses and appealed for the reversal of the increase to the VAT rate.

“If Paschal Donohoe is recommending an .80 cents increase to the hourly minimum wage without providing offset supports to the food sector and micro SME’s, I think he must be off his head,” Deputy Shanahan remarked. 

"If he can’t see significant increases in unemployment and business failure resulting, plus the flight of small early stage entrepreneurs out of Ireland," he added.

“The problem is, you have a lot of people in Government who have never run a business. If you look at right across a lot of the guys and girls in Government and their acolytes in the civil service, how many of them ever ran the business? Did they run a coffee shop? Did they run a retail store? Did they run a chipper do they do any of that? None of them have done any of that.

“They just do not understand how money is made business, and they have the idea that private sector making money and can afford to pay all these costs. But the fact is, they're not, and they can't.”