Minister of Finance suggests compromise over cutting VAT on food

Moves to protect restaurant jobs meet little approval from Centre Party

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Minister of Finance Jyrki Katainen (National Coalition Party) intends to reintroduce the issue of value added tax on food in the budgetary talks late next week.
      Katainen revealed his plan on Monday at the summer meeting of the National Coalition Party ministers in Kajaani.
      The government had earlier decided to bring down the VAT levied on food sold in grocery stores to 12 per cent from the current 17 per cent. The decision would increase the gap between food bought in grocery stores and food bought in restaurants to 10 percentage points, as the current VAT on restaurant meals is 22 per cent.
     
On Monday Katainen suggested that the VAT on food products should be lowered marginally less than already decided, namely only to 14 per cent. Moreover, even the VAT on restaurant meals should be brought down to the same 14 per cent.
      The restaurant sector fears that a mismatch between the two levels of VAT would increase unemployment in the branch and give the grocery stores too attractive a competitive advantage. The same VAT on all food products would remove the problem.
      Katainen said that the option he suggested would create new jobs, but that the loss in tax revenue would be largely unaffected.
     
According to the calculations made at the Ministry of Finance, the lowering of both value added taxes to 14 per cent would create 8,000 new jobs, while the original plan for a 12 per cent VAT on food sold in grocery stores would create some 5,800 new jobs.
      Bringing down both VATs to 14 per cent would cost the state EUR 534 million, while the lowering of the VAT on food sold in grocery stores to 12 per cent would cost EUR 507 million.
     
The Green League is backing the proposal. According to party chair Anni Sinnemäki, it is a sensible view on the matter.
      ”If the VAT on food products sold in grocery stores and on meals bought in restaurants - particularly at staff canteens - were the same, there would be many advantages, including some employment considerations”, Sinnemäki argues.
      Sinnemäki adds that it is now up to the Centre Party to decide whether the VAT reform can be reassessed in the present economic situation.
     
The Centre Party appears to be adhering to the original plan, largely rejecting the compromise proposed by Katainen. There are raised eyebrows within the party that the National Coalition partners in the current coalition would seek to unravel decisions already taken by the government.
      Only MP Markku Laukkanen (Centre) announced on Monday that he would support the 14 per cent VAT level, saying that the issue must not be turned into ”a political turf war dispute among the main government parties”.
     
At the same time, Minister of Culture and Sport Stefan Wallin (Swedish People’s Party) does not regard it as realistic that the decision on VAT would be altered at this stage.
      However, Wallin says that a 10 percentage point discrepancy between the VAT on food bought in grocery stores and that on food bought in restaurants could be very detrimental.
      ”During this week, I intend to find a solution that would make it possible to finance the reduction of the restaurant VAT to 12 per cent”, declared Wallin on Monday.
      He was unwilling to specify what his option would contain. The additional amount needed to finance such a move would be around EUR 300 million.
     
A bill to reduce VAT on food has already been passed in Parliament, and unless the law is amended once again, the VAT on food sold in grocery stores will be lowered from 17 per cent to 12 per cent. The VAT on restaurant meals is to remain at 22 per cent.
      The reduction in the value added tax on food products, as promised in the government programme, is to be implemented in early October.
      The decision to lower the VAT on food is an idea close to the hearts of the Centre Party.
     
In demanding equal tax treatment, the restaurant sector charges that if only the VAT on food sold in grocery stores is lowered, the decision is bound to worsen the crisis in the branch.


Previously in HS International Edition:
  Study: Finnish food would be relatively expensive even without VAT (14.8.2009)
  Restaurateurs and customers waiting for reduction in VAT (12.3.2009)
  Price of food may come down also in restaurants and cafeterias (9.2.2009)

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