Wine ‘n’ dine VAT cut added work hours

Working hours in the restaurant industry increased by the equivalent of 4,000 full-time positions, the National Institute of Economic Research (Konjunkturinstitutet – KI) states. But the institute conceded that it could not tell whether the increase in hours worked was due to new jobs being created or simply to a bigger workload for those already working in the industry. 

The original VAT cut was part of the centre-right government's attempts to tackle youth unemployment. Starting January 1st, 2012, restaurant VAT was slashed from 25 percent to 12 percent.

“The point of this measure is to increase opportunities for young people. There are also many immigrants who find their first job in the restaurant sector,” the then Enterprise Minister Maud Olofsson told the TT news agency.

At the time, the government set aside 5.4 billion kronor ($830 million) to pay for the reform. 

NIER, a government agency under the finance ministry – but operationally independent – also found that food prices had gone down by some four percent since the reform. The decrease indicated that 40 percent of the money invested in lowering the restaurant VAT making its way to lower tabs for Swedish restaurant-goers.

NIER also found that wages had increased marginally in the industry. 

The reform has been a political hot potato, however, as has lowered pay-roll tax for young employees – and the opposition Social Democrats have vowed to reverse the cut if they win next year's general election.

Therese Guovelin, vice chair of the Hotell and Restuarant Union (Hotell- och restaurangfacket), part of the Social Democrat-supporting LO union confederation, told the Hotellrevyn trade magazine in October that lowered pay-roll costs for employers taking on younger staff had unclear effects.

"We can see that temporary contracts have increased in the industry (…) we cannot see that the reform has created more jobs. Nor has the union ever believed that the lowered restaurant VAT would create more jobs," Guovelin said. "But we have said that it would help some companies with their liquidity, and we stand by that." 

The main opposition party the Social Democrats has signaled in its shadow budget that it would put the VAT level back up to 25 percent, which would, according to the party's calculation, add 5.6 billion kronor to the state coffers that could be invested in a 90-day youth job or study guarantee.