Michael Lennon, president of the Irish Hotels Federation claims that increasing the tourism VAT rate from its current 9 per cent would damage a national industry that
generates over €2 billion in taxes for the Irish government each year. He said, “it is essential that national economic policy does not become detached from the realities facing tourism businesses. At a time of increased uncertainty over Brexit, it makes no sense to jeopardise Irish tourism further and hinder our capacity for growth. The 9% VAT is a key part of the overall competitiveness of our tourism product.”
Mr Lennon said the 9% VAT has enabled Irish tourism to become more competitive internationally and has contributed to tourism growth across the country. At present 16 European countries have VAT rates of less than 10% on accommodation. He stated that any increase in the VAT rate would put tourism businesses throughout the entire country at a major competitive disadvantage compared with other EU countries, particularly at a time when the sector is preparing for Brexit.
The Government introduced the tourism VAT rate in 2011 to promote job creation when the live register had reached almost 450,000 nationally. “Bringing the rate in line with the VAT rates of other competing European countries was the correct decision. Tourism is recovering well,” said Mr Lennon. This year, Irish tourism will yield over €2 billion in various taxes, equivalent to 23% of tourism revenues and up more than €500 million per annum on 2011. The tourism tax take is projected to continue to grow strongly, and according to Mr Lennon, could reach €2.7 billion per annum by 2025, given the right conditions including the retention of the 9% VAT rate.
On the employment front, the IHF President said that the 9% VAT rate continues to be one of the most successful job-creation initiatives in modern time. With over 65,000 new jobs created across the country since 2011, tourism now supports employment for approximately 235,000 people. “We are now on track to create a further 40,000 jobs over the next five years, ranging from highly skilled roles to entry-level employment that provides opportunities for advancement," he added.
However, he said that the effectiveness of tourism growth in spreading employment opportunities and prosperity across the entire country is sometimes lost in discussions about the economy. “With 70 per cent of tourism jobs based outside of Dublin, tourism’s wide geographic distribution is critical to sustaining regional economies, and addressing the rural imbalance. And as the biggest investor in Irish tourism, the hotels sector is playing a critical role. Hotels and guesthouses not only provide local employment opportunities, we buy local services, source locally produced food and provide a vital infrastructure in support of local business and communities,” he added.
Mr Lennon believes that much of the debate on the 9% VAT rate as it applies to hotels in Dublin is based on perceptions rather than reality. A recent Fáilte Ireland report confirmed that Dublin remains a medium-priced city destination by European standards, with lower average daily room rates than cities including Amsterdam, Barcelona, Copenhagen, London, Paris and Rome.¹ “Dublin has a strong reputation for the high quality of our hotels. In Dublin, 68% of hotel bedrooms are classified as 4 or 5 Star providing the high service levels you would expect and based on Irish requirements that are well above the international norms. There is, however, an overall shortage of hotel bedroom stock in the city including budget hotel rooms due to the lack of investment in new capacity following the financial crisis. Notwithstanding this, during 2017 rooms were available for less than €120 on over 90% of nights.
“The growth achieved in recent years illustrates tourism’s economic and job creation potential. Our focus should therefore be on creating the right environment to sustain further tourism growth. Appropriate taxation policy that supports competitiveness is a key element of this. Tourism should be treated as an indigenous export industry given that 78% of tourism revenue is generated by visitors coming into the country and spending money in our economy. This activity is discretionary and would be put at risk by an increase in VAT and imposing hundreds of millions of euro in additional costs on visitors.
“The financial crisis showed just how vulnerable we are to external economic events beyond our control. Today we face enormous risks and uncertainty with Brexit. Some of the scenarios being forecast would have grave knock-on effects for our own economy, particularly at a regional level. The implications for tourism are stark given our heavy reliance on the UK – our largest market, accounting for over 45% of inbound visitors. Added to the poor Sterling exchange rate, any increase in VAT could result in a tipping point that risks a significant loss of market share to other destinations,” he said.