VAT increase would be short-sighted
Irish Hotels Federation Kerry Branch Chairperson Niamh O’Shea argues that the retention of the nine per cent VAT rate is vital for the future of tourism in Kerry.
IN 2011 when the live register reached almost 450,000 nationally, the Government had the foresight to introduce a tourism VAT rate to promote much-needed job creation. That measure has been of enormous benefit to the local economy in Kerry by supporting growth and making our tourism offering more competitive internationally. Bringing the rate in line with the VAT rates of other competing European countries was the correct decision.
It is allowing tourism businesses in Kerry to restore investment in product development and service levels whilst also aiding increased capacity – all critical for the long-term success of the industry. 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.
The return to the exchequer has exceeded expectations. This year, Irish tourism will yield over €2 billion in various taxes, equivalent to 23 per cent of tourism revenues and up more than €500 million per annum on 2011. Given the right conditions, the tourism tax take is projected to continue to grow strongly, reaching €2.7 billion per annum by 2025.
On the employment front, the nine per cent VAT rate continues to be one of the most successful job-creation initiatives in modern times having created over 65,000 new jobs across the country since 2011. Tourism now supports employment for approximately 235,000 people – including 15,700 jobs in Kerry. The profile of these jobs is diverse and inclusive, ranging from highly skilled roles to entry-level employment that provides great opportunities for advancement. We are now on track to create a further 40,000 jobs over the next five years and it is vital that Kerry sees its share of these new jobs.
What is sometimes lost in discussions about the economy is that tourism growth is one of the most effective ways to spread employment opportunities and prosperity across the entire country. With 70 per cent of tourism jobs based outside of Dublin, tourism’s wide geographic distribution is critical to sustaining regional economies. This is particularly true for Kerry, where tourism contributes €533 million to the local economy each year.
It is essential that economic policy does not become detached from the realities facing businesses in the regions – the engine behind Irish tourism. We know in Kerry how tourism remains very seasonal and a lot of our local hospitality businesses struggle to break even outside the peak seasons. The much-heralded recovery has been very uneven with many parts continuing to lag behind following a severe loss of ground during the downturn.
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 per cent 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 per cent of inbound visitors.
Since the 2016 referendum, the drop in value of Sterling has resulted in a marked reduction in the spending power of UK visitors and a significant drop in numbers. This is a particular worry for the tourism sector in Kerry. 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.
At a time of increased uncertainty it makes no sense therefore to jeopardise Irish tourism further and hinder our capacity for growth. The nine per cent VAT is a key part of the overall competitiveness of our tourism product. It has been a tremendous catalyst for growing tourism in Kerry. In light of the serious challenges facing the industry, any increase in VAT would be short-sighted in the extreme.
Niamh O’Shea is the General Manager of Killarney Park Hotel and Chair of the Kerry Branch of the Irish Hotels Federation.
TOURISM GROWTH IS ONE OF THE MOST EFFECTIVE WAYS TO SPREAD EMPLOYMENT OPPORTUNITIES
Niamh O’Shea, General Manager, Killarney Park Hotel, Chairperson of the Kerry Branch of the Irish Hotels Federation.