"Good food. Good coffee. Good vibes."
That was the motto of Dublin café Meltdown, which this week announced it was closing its popular toastie sambo venue on Montague Street.
In a post on Instagram, the owner Meave O'Malley citied increasing costs for the decision to close to sit-in customers.
"It's been a difficult year trying to manage constant cost increases, running a business and a family, so as a result, we've had to make the difficult decision to close Meltdown at Montague Street!"
Ms O’Malley said another element of the business, Meltdown Catering, "is still going strong" and she said Meltdown, in a café format, may pop up in other locations in the future "but for now we will only be available on Deliveroo".
But, is the closure symptomatic of a wider problem in the industry, amid the calls for a VAT rate cut in the upcoming Budget?
According to the Restaurants Association of Ireland (RAI), many food-service businesses are "under extreme pressure" to make a profit and are "fighting for time".
In a recent report, the RAI said it identified 546 closures in the food-services sector last year, including restaurants and cafés.
In the first seven months of this year, it said the number of identified closures was 306.
The association’s Chief Executive has said without urgent action in Budget 2026 "closures will escalate".
Adrian Cummins said the financial model for food businesses is broken and "without the reinstatement of the 9% VAT rate many just simply will not survive".
The standard rate of VAT for most goods and services is 23%.
For guest accommodation, catering and restaurant services, VAT is currently levied at 13.5%.
That rate was reduced to 9% in November 2020, in recognition of the impact Covid-19 restrictions were having on the tourism and hospitality sectors.
In August 2023, it reverted to 13.5%.
Since then, the hospitality sector has been campaigning for the 9% VAT rate to be reinstated.
Programme for Government pledges
In the Programme for Government, the coalition pledged to "bring forward measures to support SMEs, in particular the retail and hospitality sectors, acknowledging the increased cost pressures on these sectors".
While there are no detailed commitments, the Programme for Government stated that actions would "entail changes to VAT, PRSI and other measures".
The Department of Finance has confirmed the cost of reducing the 13.5% VAT rate to 9% for food and catering sector alone would be €674.6 million.
If introduced in a universal way, a VAT cut would be allocated to large businesses and international chains, such as McDonald’s, Burger King and Supermac’s, as well as small coffee shops, restaurants and pubs that serve food.
The Director of the Economic and Social Research Institute (ESRI) is among a number of economists questioning the justification of a universal cut to the rate for all food-led services.
Professor Martina Lawless said under such a move, many larger businesses that are "doing perfectly well" would receive a rate reduction.
"That's not to say I don't think there are plenty of businesses struggling, particularly with all the increases in the cost base. I just think there are much more effective and efficient ways to target the struggling businesses than by giving a blanket cut in the VAT rate," she said.
"VAT is essentially a tax related to your turnover, the bigger businesses are going to get, probably, the biggest benefit."
Professor Lawless said she believes "it's been very much framed as impacting your small local coffee shop, which always operated on probably quite tight margins, as it's a difficult business sector to be in".
"If you want to help that type of business, I think you need to look at much more targeted measures than ones where the bulk of the benefit is going to be eaten up by the very large operators."
The ESRI Director suggested that more targeted measures should be introduced with a focus on energy costs or local rates, which she said could be "much more targeted to business size and business location".
"The issue with the blanket VAT rate cut is it costs a lot of money overall, but the benefit then is actually spread very thinly."
The recent closure figures quoted by the restaurants industry doesn’t include details on new openings, so the there is no net figure - the difference between openings and closures.
However, the most recent Labour Force Survey from the Central Statistics Office points to a slight fall in the numbers working in accommodation and food service activities.
The figure is down from almost 185,000 at the end of the second quarter of 2024 to just over 182,000 at then end of Q2 of this year.
Professor Lawless said the sector is one with "very high rates of churn" in terms of the numbers of entry and exit by businesses.
"If you look back to when the economy was doing extremely well in for example 2018, there were 1,750 closures in the accommodation and food services, according to the CSO statistics. Now, that same year, there were about 1,900 openings."
"At the end of the day, this is a decision about taxpayers money, and if you want to use it to support a sector, there has to be quite strong evidence that it will be used in an effective and efficient way.
"I really don't think that a blanket cut to a sector which, yes, has some businesses struggling, but has many that are not, is the most appropriate kind of way to get value for money."
However, Mr Cummins said a VAT rate reduction for food-led businesses to 9% "will give us a fighting chance into the future for our sector".
Mr Cummins said small firms dominate the sector, with "76.6% of hospitality enterprises employing between one to nine people".
He added that just 0.4%, or 73 out of 20,213 hospitality enterprises, are considered large businesses or food chains.
"I think it's the right thing to do to give it for all the sector because it will be very difficult to extract 0.4% out of that."
Mr Cummins said the margins for the smaller businesses are under extreme pressure, driven by issues like energy costs, food inflation, minimum wage increases and changes to sick pay.
He said the industry is "hoping that the Government live up to their promise" to introduce a VAT rate cut, which he said would give "certainty".
"We are calling on the Government to live up to the promise that the 9% VAT rat is delivered upon from 1 January."
And amid suggestions any reduction could be delayed until July, he said there are businesses in the sector that "won't be able to survive until July".
Costs of meals and hotel stays
Will a meal out cost less if the VAT is reduced?
Mr Cummins said every business will determine whether they can pass it on to the customer or not.
He said there are some businesses out there that won't be able to pass it on because of the high costs have wiped out tight margins.
But, what about hotels?
Including accommodation in any VAT rate reduction from 13.5% to 9% would cost a further €134.9 million.
In a radio interview over the summer, Minister of State at the Department of Justice Niall Collins said extending the rate for luxury hotels sits "very, very uncomfortably" with him.
However, the Chief Executive of the Irish Hotels Federation said hoteliers have been "quite clear" that the call for the rate reduction is "for food only".
Paul Gallagher insisted the measure is "not for hotel accommodation" and he said hotels are currently "trading quite fine in terms of rooms".
"The reduction to VAT is for food service. We have not asked for rooms. We don't need it for rooms," he added.
"Really, it’s about support for smaller coffee shops and restaurants that are really on the breadline."
Mr Gallagher said businesses in the food-services sector are seeing increasing costs and he said "a reduction of just 4.5% mightn’t seem huge, but it would have a positive impact".
When asked recently if the Government remains committed to reducing the hospitality VAT rate to 9%, the Minister for Finance Paschal Donohoe said there's a commitment in the Programme for Government that "reflects the contribution that hospitality does make to the length and breadth of Ireland".
"We have, however, a tax package of €1.5 billion. That tax package will not increase in size. I believe that is the appropriate level for the economic developments that we are seeing at the moment and for the income growth that we are seeing in Ireland.
"What we will now do is look at the choices that we need to make inside those figures to bring forward an overall balanced budget and that is what myself and Minister Chambers will be doing in the time ahead," he added.
Minister Donohoe was asked if that meant there were no guarantees on the hospitality rate reduction.
In response, he said the Programme for Government commitment is very clear and he said he has always made the point that it continues to be his intention to "respond back to the need to support and protect the jobs that we have in our hospitality and service sector at a time in which those jobs, and domestic and indigenous jobs, will matter even more in the years ahead".
A big decision awaits.
As Budget Day draws closer and the fiscal considerations continue, expect the calls for a cut to the 13.5% VAT rate for the food-led hospitality sector to grow louder, with decision day on 7 October fast approaching.
