Minister of State at the Department of Enterprise, Tourism and Employment (Deputy Alan Dillon): I thank Senator Kennelly for raising this really important issue. I am very conscious of the significant pressures that pubs and the wider hospitality sector are facing, particularly in recent years as the result of rising costs across energy, labour, insurance and compliance. We need to be clear that the Government fully recognises the importance of the pub sector and specifically its social and cultural importance to communities right across Ireland rather than just its economic importance.

I am aware of the proposal made by the Vintners Federation of Ireland to introduce a tax credit to support the on-trade sector, which would be linked to the supply of draught products. It merits careful consideration. It is my understanding that the proposed scheme would provide a tax credit of €20 for every 50 litre keg of draught beer and cider, based on verified purchases from the previous year and capped at €20,000 per premises per year. I further understand that the intention is to support smaller pubs in particular.

With regard to the specifics, I understand that this is a proposal that will be advanced in the preparation of the upcoming budget. However, I am cognisant that the measure would need to be considered in light of the available fiscal parameters for budget 2027 and the wider range of priorities for the budget. It is my understanding that the Vintners Federation of Ireland has estimated the cost of the proposed scheme to be in the region of €75 million annually. The measure would also need to be considered with reference to the Department of Finance's tax expenditure guidelines, which provide for the evaluation of tax expenditures, including tax credits, to give consideration as to when these are best used.

As the Tánaiste and Minister for Finance has stated previously, this measure would need to be considered in line with the alcohol structures directive, which provides for a harmonised framework for the taxation of alcohol across the EU. The Tánaiste has stated that it is unclear whether the proposed on-trade sustainability scheme would be permissible under that directive if its effect, in practice, would be to give relief from the rate of excise duty paid on alcohol products. The directive does not allow for differentiated excise duty rates between the on-trade and off-trade sectors. This means that Ireland cannot apply reduced excise duty rates to alcohol sold in pubs, restaurants or other licensed premises. Any changes to alcohol excise duty must make no distinction as to the point of sale. As this is a targeted tax measure, from an EU state aid perspective, consideration would need to be given as to whether it would be compliant with state aid rules. Ultimately, I also note that any changes to tax policy as part of the budget are a matter for the Minister for Finance.

I accept the importance of small pubs in rural Ireland and their significant decline over recent years. They remain a real focal point for communities, providing a social environment where people can engage and find a bit of belonging and connectivity. I thank the Senator for raising this important matter.....

....Minister of State at the Department of Housing, Local Government and Heritage (Deputy Kieran O'Donnell): I thank the Senator for raising this important issue and highlighting the role that pubs and the hospitality sector play in Irish life and culture by providing a central hub and meeting place in towns and villages across all of rural Ireland, which she articulated very well. I am taking this matter on behalf of the Tánaiste and Minister for Finance, Simon Harris.

The Government’s commitment to the sector was most recently demonstrated by the reduction in the VAT rate to 9%, recognising that the sector was highly labour intensive. Senator Lynch acknowledged that reduction. The sector forms a key part of the domestic economy and is expected to support over 150,000 jobs across the country. While acknowledging that the VAT reduction will not apply to all, it will help to keep the doors of many open, including those pubs that offer food and hot drinks as part of their trade.

The Department of Finance receives pre-budget submissions from a wide range of stakeholders in advance of each budget and all are given consideration as part of the annual policy cycle. With regard to rural pubs, the particular point raised by Senator Lynch, I am aware that the Department has received and acknowledged a submission from VFI outlining a proposal for a payable tax credit for pubs. The proposed payable credit would be linked to the number of draught product kegs purchased by a business, and the proposed credit would be subject to a per premises cap of €20,000. Proposals for new tax expenditures are examined by reference to the Department’s tax expenditure guidelines, which outline the Government’s approach to when tax expenditures are best used, noting that these narrow the tax base, and how they should be evaluated.

In the case of a proposal for a targeted tax incentive, such as that put forward by the VFI, consideration must also be given to European state aid requirements. Measures that may confer a selective advantage on a specific sector, such as incentives to support rural pubs, have the potential to constitute a state aid and, therefore, could not be introduced unless compliant with an existing framework or undertaking a full notification process. The VFI submission references the tax credits available for film and digital games and their relevance to supporting Irish culture. It is noted, however, that these are all approved state aids, largely under the terms set out in the EU’s “Communication from the Commission on State aid for films and other audiovisual works”, which would not have relevance to the on-trade sector.

Additionally, any tax credit given to rural pubs or, indeed, to all pubs would potentially be contrary to the alcohol structures directive where it is based on the supplies of alcohol products to those pubs. I am aware that the VFI has, in the past, proposed a general reduction in alcohol excise. However, this proposal was not taken forward, as excise duty on alcohol is governed by EU law, with which Irish excise law is obliged to conform. It is worth noting that there has been no general increase in excise duty rates for alcohol since 2014. While the retail price of beer has risen over that period, the excise duty has remained unchanged and, therefore, the total tax as a percentage of the retail price of each pint is now lower than it was more than a decade ago.

I am aware that recent years have been challenging for the hospitality sector as a whole, particularly through the period of Covid-19 restrictions. The Government is conscious of the challenges facing pubs, including rural pubs, and all other businesses in the current economic climate, and the cost of business advisory forum is working to look at the structural issues that are driving up costs and the steps that could be taken to mitigate them.

There are also a number of existing tax supports available to all businesses, including the on-trade, to encourage investment in the economy and, in particular, indigenous SMEs. These include the employment investment incentive, the start-up relief for entrepreneurs and the start-up capital investment. A range of direct expenditure supports are also available to businesses, and details can be found online on the national enterprise hub.

Notwithstanding the above, I the Senator that the matters raised in the submissions by VFI will continue to inform ongoing policy considerations in the context of the budgetary process.

Senator Eileen Lynch: I note the content of the reply and there are a few things I will respond to. This proposal from the VFI is compliant with the alcohol structures directive. Obviously, there is a question to be answered in terms of state aid but I would be confident that, given the role of the pub in rural society, the proposal does not fall under the state aid provision and would not interference through state aid. The Minister of State's reply does not specify whether it is.

I take the Minister of State's point on excise. We have seen a reduction in excise and, as a proportion of the price of a pint, it has fallen over time, but the cost pressures facing pubs have not....