Restaurants' VAT cut here to stay

THE GOVERNMENT has refused to scrap a controversial tax break for restaurants described by one consumer group as a "proven failure".

The VAT rate cut from 19.6% to 5.5%, which came into force a year ago, has allowed restaurants to employ more staff but has had a limited effect on consumers, according to figures from official statistics body Insee.

The government is under pressure to cut a number of tax breaks to save money, but Budget Minister François Baroin and Finance Minister Christine Lagarde have ruled out making the restaurant VAT deal one of them.

According to Insee, the restaurant sector appeared to have kept its promise to create new jobs, with 21,700 new posts.

This figure is based on official records kept by social contributions body Urssaf.

The figures have been contested by the Force Ouvrière workers' union, which says many of the jobs would have been created anyway due to seasonal fluctuations in demand.

However Insee found that less than half of restaurants have dropped their prices, and the average decline is just 1.3% - a long way short of the 3% target.

Consumer group UFC-Que Choisir's own investigation based on visits to 1,500 restaurants found some of the price cuts were just a few centimes. Another group, CLCV, has called for the tax break to be scrapped completely because it has failed.

Ms Lagarde said three restaurant unions had signed agreements with their staff over pay and training - with a €500 annual pay rise and two extra days of paid holiday each year.

However she agreed that it was wrong that so few restaurants had passed the rate cut on to customers.

In a recent poll, 61% of people disapproved of the €3bn tax break and said it should be axed because it has had little effect on the prices paid by consumers.