Senator Lynch is next and she is wearing the Cork colours.

Yes. It is a big weekend ahead.

I thank the Minister of State for coming to the House. I am raising the matter of the introduction of budget measures to prevent the closure of rural pubs. It is very similar to the matter that was just raised by my colleague Senator Kennelly, which was directed at the Minister for enterprise, whereas this is directed at the Minister for Finance. Senator Kennelly has raised the idea and now I am looking for the funding.

The Minister of State is well aware of these issues within his own constituency. It is an issue not just across all of rural Ireland but also increasingly in our towns and cities. Since 2005, more than 2,200 pubs have closed across Ireland. That is a decline of 25% in the total number of licensed premises nationally. It is an incredibly stark statistic. Even more concerning than that is that the rate of closure is actually accelerating. The average annual rate of closure now stands at 128 pubs per year. Recent survey findings from the Vintners’ Federation of Ireland, VFI, show that 65% of publicans believe rising business costs are having an unsustainable impact on operations. Forty-one percent of them say trading conditions are worse than what they were 12 months ago and almost 42% lack confidence in the future of their business. Twenty-two percent of pubs report reduced staffing levels over the past year as they struggled to absorb rising costs.

The pub is at the heart of community life in many of our villages across the country. It is a key part of our national identity. It is a social spot. It is a local employer. Pubs are part of the social fabric of rural Ireland. It is a cultural thing for us and when a pub closes, a community loses far more than just a business.

In my own area of rural mid-Cork in Cork North-West, my local pub has been closed since March. We have seen the impact that has had within the community. We are hopeful it will open again. This is a pub in a village called Bealnamorive. There is a school and a church; that is it. We do not have a community hall. We do not have anywhere else within that area where people can gather. The pub was a fantastic social outlet. A neighbouring village, Rylane, has not had a pub since 2016 and in my other neighbouring village of Aghabullogue, the pub is open four nights per week. That one pub that is open four nights per week provides a serious social outlet for many people who are living on their own in the area. It helps a lot with rural isolation and we have to acknowledge that important role of the pub.

It is important to say that our drinking habits as a nation have changed and that is not necessarily a bad thing. Therefore, there is less of a market there for pubs. That is why we also need to encourage pubs to diversify. I welcome the Minister, Deputy O'Donovan's night-time economy grant that was announced recently. I am aware of pubs in my vicinity that are taking advantage of that and it is a way of diversifying your business. A lot of businesses are starting to do more trade in terms of book clubs, tea and coffee evenings and these kinds of thing, so there are measures like that that pubs need to look at. We need to encourage them.

I also want to acknowledge the important step that was the 9% VAT reduction, but that only helps pubs that are serving food. It does not help these "wet pubs" - I hate that phrase. Two thirds of pubs do not actually serve food, so they will not benefit even though they make up the vast majority of pubs across our towns and villages.

That is why VFI has proposed a practical and targeted solution. Senator Kennelly has spoken about it already this morning but I am asking that the finance be found for it in the upcoming budget. The proposal is very straightforward. It would provide a tax credit to pubs based on verified purchases of draught products, with supports capped at €20,000 per premises per annum. Credit could be offset against tax liabilities or paid where liabilities are insufficient. Importantly, it is specifically designed to support smaller pubs and help to protect the viability of businesses that are under the greatest pressure.

As part of the reply Senator Kennelly received, the Minister of State raised the point as to whether this measure would be compliant with the EU alcohol structures directive, which does not allow a reduction, rebate or offset to excise duty. If that is a concern, I would like to confirm that the proposal is compliant with it. It is a targeted business credit, similar to schemes we have seen introduced in other sectors such as film, television, unscripted television and gaming. I urge the Government to consider this matter ahead of the budget.

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.

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.

Electricity costs have increased by 17% over the last five years. Wage costs have increased by 40%. Water tariffs increased by 30% in 2024 and a further 10% this year. Pubs are facing a barrage of ongoing costs. If we want them to remain open as rural hubs in our communities, we have to give them the support they need. Many pubs around the country are pretty much just providing a community service at this point. The proprietors are not making any profit out of it, but they are providing a community service. If we continue on this current path, many of the pubs we are talking about today simply will not be open by the end of this year. For that reason, I urge the Minister of State to bring forward this proposal.

I thank Senator Lynch for raising this important matter. As I stated earlier, I am taking this debate on behalf of An Tánaiste and Minister for Finance, Deputy Harris. I am fully aware of the importance of local pubs to Irish culture and the Irish economy, particularly the local and rural economy. Like all businesses, the on-trade is facing challenges from increased costs. The Government is taking steps to alleviate these challenges, particularly through work being co-ordinated through the Department of Enterprise, Tourism and Employment and the cost of business advisory forum on the action plan for competitiveness and productivity.

Action has already been taken to support the hospitality sector; for example, as I mentioned earlier, through the VAT reduction to 9%, which will take effect from July. This will be of benefit to pubs selling food and hot drinks. In addition, the Government announced two energy support packages earlier this year. These are temporary excise reductions for auto diesel and marked-gas diesel in an enhancement to the diesel rebate scheme.

The Government also announced the deferral of the planned 1 May carbon tax rate increase until 14 October 2026. While no Government can fully insulate against energy price shocks, these measures provide support to households and the broader economy by alleviating some of the financial pressures arising as a result of fuel price increases. I will bring the points the Senator has raised to the attention of the Department of Finance officials and the Tánaiste and Minister for Finance. The Government will continue to focus on supporting businesses across Ireland, including pubs, as we develop options for budget 2027.

Before we suspend, I would like to welcome Deputy Michael Cahill and his guests to the Gallery. I hope they have an interesting visit.