In an open letter to constituency public representatives, Barry Kennedy, chairperson, Midlands Branch, Irish Hotels Federation (IHF ), is seeking government support for the retention of the nine percent tourism VAT rate, as the hospitality industry faces ongoing economic challenges in 2023.
“As a country, it is essential that we do all possible to secure the long-term, sustainable recovery of Irish tourism. This is crucial at the current juncture as we grapple with record levels of inflation, skyrocketing business costs and a global economy that is edging towards recession. We must ensure nothing is done that would undermine the recovery, such as increasing consumer taxes on holidaymakers and visitors to our shores.
“The proposed 50% increase in tourism VAT makes no sense during a cost-of-living crisis. It would only add to inflation and undermine our Irish tourism’s competitiveness internationally when the focus should be on safeguarding jobs. We cannot afford to be complacent about tourism and hospitality given the vital role it plays in spreading employment opportunities across the entire country.
“Tourism businesses are collectively our largest indigenous employer. Prior to the pandemic, our industry supported over 270,000 livelihoods including some 6,400 jobs in this constituency, generating €87 million in tourism revenues annually for our local economy,” Mr Kennedy said.
Tourism Upsurge
The IHF chairperson has welcomed the upsurge in tourism as the local hospitality sector returns to a post pandemic sense of normality.
“Some of this increase is tentative having been boosted by short-term factors including high levels of demand during the summer and hotels catering for a large amount of displaced business previously contracted for 2020 and 2021. The recovery to date has enabled enormous progress in restoring employment and we are now supporting over 240,000 tourism jobs – almost 90% of our previous 2019 levels.
“Most hotels and guesthouses, however, are still recovering having come out of an exceptionally challenging two years of Covid-19 during which time the hotels sector alone lost over €5 billion in revenue. Overall occupancy levels in 2022 were significantly down compared with 2019 and overseas tourism is expected to be down 25% on pre-pandemic levels. A full recovery is likely to be delayed until 2026, and it will be further impacted by a softening in demand as a result of downturns in the global economy.
“Every day we hear worrying economic news, with our key overseas tourism markets expected to experience significant slowdowns over the next year. A particular cause for concern is the UK, which is facing a bleak economic outlook with inflation hitting a four decade high and the country heading into an apparent recession. This is very worrying for tourism businesses given the UK has traditionally been our largest source market for visitors. The outlook for the rest of Europe is also very concerning as is the ongoing war in Ukraine, which is having an impact on tourism capacity.
“From a tourism perspective, the rising cost of living – both at home and internationally – means we are facing a potential tipping point with consumer confidence reaching lows across overseas markets. Reduced disposable income will inevitably have a negative impact with visitors unlikely to spend money on discretionary items such as holidays,” Mr Kennedy stated.
Energy Crisis Concerns
Mr Kennedy also stressed that the ongoing energy crisis is also having a detrimental impact on the hospitality industry.
“Unfortunately, many hotel businesses are seeing increases of upwards of 300% in energy bills compared with 2019 levels. It is not just energy hikes that are hitting hotels and other tourism businesses, we have faced escalating increases across our entire cost base. Hotels are reporting average increases of 25% in the cost of food supplies, beverage costs up 16%, linen and laundry costs up over 30% and insurance costs up 18%.
“This is why the tourism VAT is so important. The nine percent rate makes a vital contribution to our international competitiveness and tourism business model. It has supported the creation of tens of thousands of jobs and is the right rate for tourism in the context of the EU, bringing us in line with our European competitors. Far from being an exceptional measure, most European countries have a low VAT rate on tourism accommodation.
“What we see is that those countries that place a high value on tourism as part of their economy, tend to have lower tourism VAT rates. Of the 27 EU countries, the VAT rate on accommodation is nine percent or lower in 16 countries. In these countries it is policy to support tourism with a lower VAT rate as its contribution to jobs, businesses and the wider economy pays its way many times over.
“In light of the turbulent times ahead, it is therefore very worrying that Government plans to increase the tourism VAT rate to 13.5% at the end of February. Such a move would mean a 50% increase overnight on the amount of VAT currently paid by tourists, a decision which would make Ireland an outlier amongst countries in Europe that prioritise tourism.
The looming increase in VAT means that Irish consumers and overseas visitors would be paying Europe’s the third highest tourism VAT rate, putting us at an enormous competitive disadvantage as we seek to recover tourism levels and restore employment. This is the last thing the Government should contemplate at a time of record levels of inflation and a cost-of-living crisis. If safeguarding tourism and regional employment is the priority, then raising the tourism VAT rate would be a serious policy error detrimental to the long-term prospects for our industry as Ireland’s largest indigenous employer,” Mr Kennedy concluded.
