Dan O’Brien ‘Tourism doesn’t need a tax break’

Irish Independent - - News - Dan O’Brien

TWO things about tourism: it’s one of the coun­try’s great home-grown busi­ness suc­cesses; and it no longer needs the tem­po­rary tax break it was given seven years ago.

Let’s fo­cus first on the news ev­ery­one will be happy to hear.

Record numbers of vis­i­tors flocked to Ire­land in the first half of the year, ac­cord­ing to numbers high­lighted this week by the body charged with pro­mot­ing tourism.

The boom in tourism is vis­i­ble al­most ev­ery­where across the coun­try. Places that have long been at­trac­tive are thronged – and in some cases over-thronged. Many other places that have not been on the tra­di­tional tourist trail are get­ting in on the act. So are peo­ple who, in the past, might not have been able to ben­e­fit from the cash spent by tourists.

While there are down­sides to the Airbnb phe­nom­e­non at a time of a hous­ing short­age in a few ur­ban cen­tres, it has also al­lowed peo­ple to boost their in­comes by sweat­ing what is for many folk their only sig­nif­i­cant as­set.

The boom is hap­pen­ing in large part thanks to good eco­nomic times in all the big source coun­tries and re­gions for tourism.

The ar­rival fig­ures showed that vis­i­tors to Ire­land from con­ti­nen­tal Europe hit record numbers in the first half of this year, jump­ing by more than a tenth on the first six months of 2017.

That re­flects con­tin­ued eco­nomic strength across the euro area and the fact that the job­less­ness rate is close to the low­est it has been since the turn of the cen­tury.

Just this week, eco­nomic growth fig­ures showed that the con­ti­nen­tal econ­omy bounced back in the spring and early sum­mer af­ter a soft patch in the win­ter. In­di­ca­tors point to con­tin­ued solid growth into the sec­ond half of the year.

Vis­i­tors from the other side of the At­lantic also hit record highs this year, with growth get­ting into dou­ble fig­ures com­pared with the same pe­riod last year. Again, that’s thanks to a strength­en­ing econ­omy and lots of new jobs, along with a strong dol­lar, which gives Amer­i­cans a big­ger bang for their buck when they travel abroad.

Brits have not been so lucky in that re­gard. Brexit has clob­bered ster­ling. The weak­ness of the pound makes stay­ca­tions in Blighty rel­a­tively more at­trac­tive to hol­i­day­ing in pricey eu­roland.

This fac­tor re­sulted in a slump in UK vis­i­tor ar­rival fig­ures last year. But as the ex­change rate has been more sta­ble this year, trips from across the water in the first half of this year rose, if only marginally.

That so many coun­tries are en­joy­ing good eco­nomic times is con­found­ing in many ways. De­spite Brexit, the UK recorded a 43-year low last month in its un­em­ploy­ment rate, and its econ­omy is still shrug­ging off Brexit un­cer­tainty for the most part.

How­ever, as much as the po­lit­i­cal tem­per­a­ture in the US might have risen, as that coun­try be­comes ever more po­larised, it is not stop­ping con­sumers from spend­ing. Nor is there much sign yet that anti-trade mea­sures taken by the Trump ad­min­is­tra­tion, with fears of more to come, are stop­ping busi­nesses from in­vest­ing.

On this side of the At­lantic, the Euro­pean econ­omy is tak­ing fears of a trade war in its stride, as it is Brexit, a rogue gov­ern­ment in Italy and bank­ing sec­tor vul­ner­a­bil­i­ties.

This col­umn has noted pre­vi­ously an ap­par­ent de­cou­pling of pol­i­tics and eco­nom­ics in the rich world.

All the po­lit­i­cal in­sta­bil­i­ties and un­cer­tain­ties in re­cent years are show­ing up much less in the eco­nomic data than one might have ex­pected in the past. Let’s hope it stays that way, for ev­ery­one’s sake, in­clud­ing the tourism sec­tor.

NOTH­ING bet­ter re­flects the boom that sec­tor is en­joy­ing than the num­ber of jobs it has cre­ated.

As of the first months of this year, a new record of 172,000 peo­ple were em­ployed in the ac­com­mo­da­tion and food ser­vices sec­tor. That is up 50pc on seven years ear­lier – a much big­ger in­crease than even the muchtalked-about tech sec­tor – when the then gov­ern­ment agreed to give the hos­pi­tal­ity in­dus­try a VAT break.

That tax break was sup­posed to be tem­po­rary in or­der to help the in­dus­try re­cover from the deep slump it was in at the time.

While it is likely to have been of some help in the early days, the main driver of growth in tourism is a good prod­uct com­bined with strong eco­nomic growth in the coun­tries from which most vis­i­tors orig­i­nate. Alas, many in the in­dus­try have con­vinced them­selves that the tax break was re­spon­si­ble for the re­cov­ery in their busi­nesses and are as con­vinced that re­vers­ing it – in­volv­ing an in­crease in VAT from 9pc to 13.5pc – would send them back to the dol­drums of 2011. This is sim­ply wrong.

While no busi­ness wants to be sub­ject to higher taxes, there is no eco­nomic case for main­tain­ing a spe­cial and sup­pos­edly tem­po­rary break in­tro­duced seven years ago. Ac­com­mo­da­tion prices in July this year were 32pc higher than the same month in 2011, de­spite over­all price in­fla­tion over that pe­riod be­ing non-ex­is­tent and low wage in­creases. If tourists have flooded to Ire­land in spite of much higher ac­com­mo­da­tion prices, a 4.5 per­cent­age point VAT in­crease, even if fully passed on to vis­i­tors, is not go­ing to have much of an im­pact.

Of all the many ways governments have of ex­tract­ing cash from in­di­vid­u­als and busi­nesses, VAT-type taxes are con­sid­ered to be among the least dam­ag­ing to growth.

With the VAT break cost­ing hun­dreds of millions of euro an­nu­ally and bil­lions needed to ease in­fra­struc­ture bot­tle­necks, it is well past time this tem­po­rary tax break was ended.

Many in the in­dus­try have con­vinced them­selves that the tax break was re­spon­si­ble for the re­cov­ery in their busi­nesses and are as con­vinced that re­vers­ing it – in­volv­ing an in­crease in VAT from 9pc to 13.5pc – would send them back to the dol­drums of 2011. This is sim­ply wrong

Photo: Getty

High Street in Gal­way city is a hive of tourist ac­tiv­ity at this time of year.

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