Failure to cut VAT would lead to job losses as well as ‘mass closures’, new report on the sector argues
More than 300 businesses in the food services sector closed in the first seven months of the year, according to the Restaurants Association of Ireland (RAI), which has laid the blame for the “severe” pressure the sector is under squarely at the feet of the Government.
The association, which is to meet Minister for Finance Paschal Donohoe next week, published a report on Tuesday which presented its case for cutting VAT in the sector from 13.5 per cent to 9 per cent in October’s budget.
The reduction would cost the State about €674 million, the latest Tax Strategy Group papers show, a figure the report described as “small” in the context of the €9.4 billion budget package.
It added the estimate does not account for the “positive economic impact” of the measure.
The report flatly rejected commentary in recent months suggesting the sector is “booming”, and outlined its rationale as to why headline figures on which such assertions have been based ought to be treated with caution.
Speaking at the launch of the report in Dublin, RAI chief executive Adrian Cummins said most businesses in the sector, which encompasses restaurants, takeaways, pubs, and coffee shops, are operating with profit margins in the region of one to two per cent.
He said businesses in the sector have been “blacklisted by the banks”, relying on data from the Central Bank showing gross new lending “collapsed” from €17 million to €6 million in March compared with the same period last year to support his argument.
The RAI’s report, which was based on research from former Dublin City University (DCU) economics professor Anthony Foley, identified 546 business closures last year, and 306 in the first seven months of 2025. “We are confident we do not identify all closures,” the report said.
The report pointed to Government measures such as minimum wage increases, the move to the living wage, higher employer PRSI, pension auto-enrolment, additional bank holidays, leave regulations, sick pay regulations, and water charges, as aggravating factors.
“It has to be recognised that, apart from market generated cost increases, the Government is responsible for much of the cost increases faced, and still to be faced,” the report said.
“The Government policies have significantly added to the sector’s difficulties. It has paused some of the still-to-come measures but we recognise that this pause is temporary and short-term and these cost increasing measures will quickly come back.”
The report said failure by the Government to cut VAT would lead to job cuts as well as “unsustainable costs”, which would in turn result in “mass closures” across the sector.
One “solution” put forward by the report was to “simply increase prices to customers”, something it accepted would “reduce consumer demand, downsize the sector, and negatively affect the appeal of Ireland for tourists”.
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The report said cost pressures faced by the sector have already forced it to impose price increases, more of which will face “significant consumer resistance” with “adverse consequences” for individual enterprises and the sector as a whole.
Additionally, the report suggested many business owners are relying on personal savings to stay afloat.
“Businesses are cutting back on opening hours, reducing staff hours, deferring maintenance, and postponing investment in upgrades or innovation,” it said. “Many are drawing down personal savings or using short-term credit to keep doors open.”
Only 7 per cent of restaurants had an increase in revenue in 2025 compared with the same period in 2024, while 69 per cent had a decline, the report said.
Average payroll costs have increased as share of total turnover from 32 per cent to 39 per cent since 2022, while food costs as a share have increased from 28 per cent to 34 per cent over the same period.
