I am writing on behalf of Galway hotels and guesthouses, representing 88 local businesses, to highlight our growing concerns about plans in September to increase consumer taxes on Irish hospitality and tourism.
Government estimates indicate that the proposed increase in VAT to 13.5 per cent would see people paying an additional €560m in taxes each year. That’s a 50 per cent increase in taxes on everything from the price of a cup of coffee, to the price of a meal out, a stay in a hotel or guesthouse and the cost of social events such as weddings.
This is at a time when people’s personal finances are already under significant pressure due to the cost-of-living crisis. With inflation remaining persistently high, consumer prices are forecast to be over 16 per cent higher in 2024 than they were in 2021. Meanwhile, households are also being squeezed by soaring mortgage interest rates, with more increases to come.
This has a knock-on effect on the decisions the average person makes when deciding whether or not to spend money on discretionary items such as going out for a meal with family and friends or taking a short break in Ireland. Tourism and hospitality are particularly vulnerable and invariably one of the first to take the hit. Increasing taxes on already hard-pressed consumers is therefore the last thing the country needs.
From a tourism perspective, the current 9 per cent VAT is the right rate for Ireland. It is in line with average rates of tourism VAT across Europe. Increasing the rate of VAT paid by consumers to 13.5 per cent would make us an outlier among our competitors. We would have the third highest tourism VAT in Europe, which would seriously undermine our international competitiveness and ability to attract visitors.
The reality is that Ireland is already one of the most expensive places in the world in which to live and do business. Recent figures show that general consumer prices in Ireland are the highest in the EU at over 46 per cent above the average. This begs the question we are asking all TDs to consider: “Why should Ireland, as an island destination, have the 3rd highest tourism VAT rate in all of Europe?”
For that matter, how can it be in the interest of Galway and our vitally important local hospitality and tourism industry for us to have among the highest taxes on visitors and people holidaying at home – second only in the EU to Denmark?
Surely as we look to develop and grow our local hospitality and tourism offering, the focus should be on making us more attractive as a tourism destination, not more expensive? This is where the Government’s approach to taxation is of critical importance. Taxation is one of the key tools at its disposal to create the right conditions for continued long-term and sustainable recovery of hospitality and tourism. The decision around Ireland’s VAT is now of particular relevance given the challenges currently facing our wider tourism industry, including enormous increases in the cost of doing business and uncertainty in overseas markets.
Recent figures from Fáilte Ireland indicate that displaced tourist capacity due to emergency Government contracts will this year result in a cost of approximately €1bn in lost revenues for downstream tourism enterprises, including many regional and rural businesses that play a vital role in our wider tourism ecosystem. This hit is in addition to the proposed annual €560m VAT increase. There is now a real risk that long-term damage will be done to our wider industry, including local tourism enterprises in Galway.
This does not have to be the case. When it comes to Government taxation policy, we have seen the enormous success of Ireland’s competitive approach to attracting foreign direct investment. Similarly for the indigenous economy, the Government’s approach to the 9 per cent VAT rate has delivered phenomenal results in support of employment and local businesses since its original introduction in 2011.
Over the intervening twelve years, despite a financial crisis and a pandemic, tourism and hospitality has generated approximately €66 billion in revenues for the economy and over €15 billion in taxes for the exchequer – the benefits of which have been felt across every town and county throughout the country, including here in Galway.
Time and time again, we hear about the need for Ireland to create a more balanced economy that supports indigenous sectors and a greater spread of investment throughout the country. We wholeheartedly agree, and what better way to do this than by creating the best environment to support hospitality and tourism, our largest indigenous employer?
Increasing VAT on hospitality and tourism would have the opposite effect. It would pose significant risks to a vital part of our economy that supports over 20,000 businesses throughout the country. This is an industry that, prior to the pandemic, supported over 270,000 livelihoods including some 22,000 jobs throughout Galway, generating €910m in revenues annually for our local economy.
Ireland should be doing everything possible to support indigenous economic activity that distributes prosperity and opportunities throughout the entire country, including regions such as the West of Ireland. This requires a long-term Government strategy that balances a focus on competitiveness, investment in our people and allocation of resources for targeted development of our tourism infrastructure.
The last thing we should be doing is increasing consumer taxes on hospitality and tourism and making Ireland less competitive. On behalf of hoteliers throughout Galway and our wider tourism community, we are urging local TDs to support our call on the Government to retain the 9 per cent VAT rate.
