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Highest EU and UK tax burden on Ireland’s hospitality industry ‘unsustainable’ in post pandemic recovery

Highest EU and UK tax burden on Ireland’s hospitality industry ‘unsustainable’ in post pandemic recovery

DIGI says Government must prioritise industries most impacted by pandemic with ‘actions’ and not ‘promises’ in Budget 2022 as high tax rates will delay recovery and cost jobs

• Group estimates that the drinks and hospitality industry is set to employ 140,000 people in 2022 - 40,000 fewer than in Q4 2019, the last pre-pandemic quarter
• A lower tax burden would support industry to maintain revised national employment figure of 140,000
• DIGI: ‘the effects of a reduction would be felt immediately and would support the sector to recover from the lasting effects of the pandemic, such as increased liabilities and debt, reduced capacity and the higher costs associated with operating in the current trading environment.’

A drinks and hospitality representative group has said that the high excise tax rates levied on Ireland’s drinks and hospitality industry are totally unsustainable in a post pandemic environment, as businesses try and build back trade and recoup losses following a 16-month lockdown – the longest lockdown endured by a drinks and hospitality sector in the EU and UK.

The Drinks Industry Group of Ireland (DIGI) whose members include Ibec’s Drinks Ireland, Diageo, Heineken and Irish Distillers, along with retail sector groups including the LVA, VFI, RAI, IHF and NoFFLA said that Budget 2022 must prioritise industries most impacted by the pandemic with ‘actions’ and not ‘promises’ as high tax rates will delay recovery and cost jobs.

In its 2022 pre-Budget Submission, DIGI has called for a 7.5% reduction in Ireland’s excise tax rate, beginning a programme of annual excise reductions to gradually bring Irish rates into line with the much lower EU levels. Ireland is among a group of outlier countries—Finland, Sweden, and the UK—that charge high levels of tax on drinks products relative to the rest of Europe. This is in addition to VAT charged on drinks also.

Ireland has the second highest overall excise rate in the EU and UK, the highest excise on wine, the second highest on beer, and the third highest on spirits, despite Ireland producing some of the world's most famous drinks products and considering the importance of drinks and hospitality businesses to our economy and Irish tourism.

The magnitude of the differences in alcohol excise between Ireland and other EU economies is large. For example, Ireland’s beer excise is 11.4 times that of Germany. Irish spirits excise is 4.4 times that of Spain.

DIGI advised that a 7.5% reduction in excise tax would make an immediate and material impact on drinks businesses, could be introduced overnight and help the industry to maintain jobs in 2022 and beyond. Such a policy decision would signal a solution and action-based approach by Government and not another promise, according to Liam Reid, Chair of DIGI and Corporate Relations Director at Diageo Ireland.

Jobs

‘Reducing the tax burden on the industry will help the drinks and hospitality sector to rebuild commercial activity in all areas of the country and to recover total employment nationally and regionally.

‘Employment generation is one of the most important policy issues for the next few years and the drinks and hospitality sector has a strong track record of national and regional job creation. It can deliver again,’ he said.

In recent data compiled by DCU Economist Anthony Foley on employment in the industry, analysed and published by DIGI, the group estimates that the drinks and hospitality industry is set to employ 140,000 people in 2022 - 40,000 fewer than in Q4 2019, the last pre-pandemic quarter.

Among the 40,000 fewer jobs are an estimated 12,700 15–24-year-olds and almost 22,000 women. This is despite the broader economy’s ongoing recovery as the country approaches full vaccination.

In April 2021 the CSO estimated, on a Covid adjusted basis, that the national youth unemployment rate was a daunting 61.8%. In Q4 2019, before the impact of Covid-19, 31.8% of hospitality employment was in the 15-24 age group, compared to only 11.2% of total employment.

According to Liam Reid, ‘jobs in the industry have a wide regional spread and should be protected as part of our economic recovery. Youth unemployment is a particular issue arising from Covid and the drinks and hospitality sectors are well positioned to generate jobs for young people as it is typically a large employer of young workers.

‘Equally, the effects of a reduction would be felt immediately and would support the sector to recover from the lasting effects of the pandemic, such as increased liabilities and debt, reduced capacity and the higher costs associated with operating in the current trading environment.

‘The reality is that the Irish government takes approximately a third of the price of every drink purchased, money that could otherwise be invested by the business in developing its product and service to attract customers and tourists, maintain jobs, hire new staff, and focus on ways to return to pre pandemic levels of trade.

‘Now is the time to take brave and action-based policy decisions which will have an immediate and tangible impact on an industry which has enormous potential to contribute significantly to our recovery,’ said Mr Reid.