The Irish government has announced a rise in VAT in the hospitality sector, alongside measures to increase the supply of affordable housing.
Finance minister Paschal Donohoe announced a raft of tax and spending measures, with housing one of the central themes of next year’s budget, in the Irish parliament today.
Tax on the hospitality sector, including hotels and restaurants, will rise from 9% to 13.5% from January 2019 and is expected to raise €466m (£409m).
Donohoe said: “The tourism and hospitality sector also plays a key role in our economy, providing balanced regional growth and supporting nearly 240,000 jobs.”
Cut had ‘done its job‘
The minister said it had made sense to cut VAT in 2011, but the measure had now “done its job”.
At the same time, the budget will allocate €35m for tourism investment, including €4.5m for regional initiatives.
Marie Hunt, executive director at CBRE Ireland, said: “It was anticipated that the [hospitality tax increase] might happen from midnight tonight but now it won’t happen until January. It is was felt that increasing the rate back up to 13.5% would have more impact on regional Ireland so the allocation of a €35m fund to help alleviate that is welcome. On the one hand they have taken money away and on the other they have provided funds for regional development, which will take the sting out of the tail somewhat.”
However, the well-trailed potential rise in stamp duty tax on the private rented sector (PRS) did not feature in the budget.
Multiple industry sources had said the government could extend last year’s stamp duty hikes on the commercial real estate sector to the PRS sector.
‘Bad timing’
Hunt said: “Sense has prevailed; it would have been really bad timing if that had happened now just as international capital is encouraged to invest in the Irish build-to-rent sector and help alleviate supply pressures, so I am pleased about that.”
Meanwhile, the government plans to spend €2.3bn on its housing programme next year. This includes €1.25bn on delivering 10,000 new social homes through a combination of construction, acquisition and leasing.
Donohoe said €100m would be allocated to a serviced sites fund to support local authorities in bringing forward land for subsidised, more affordable housing. This fund will be increased to to €310m over three years.
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