Jim Power: Vat hike was wrong as Irish tourism faces tougher times
I believed at the time that the decision in Budget 2019 to increase the Vat rate for the hospitality industry from 9% to 13.5% was a mistake in terms of its timing, its magnitude and the rationale that was used.
The timing was particularly damaging, given that we were heading into a year of more difficult global economic circumstances, and of course Brexit was starting to ramp up as a big issue for both the Irish and UK economies.
In addition, the tourism sector was moving into an environment of significantly higher costs of doing business and labour market issues.
Stakeholders in the sector argued at the time that it would have a negative impact, but they were ignored by a government that was effectively prepared to turn its back on many small businesses who are vital to the overall tourism offering and to economic activity in rural areas.
The analysis justifying the increase was flawed and appears to have been heavily driven by the experience of rural politicians with Dublin hotel prices and trade unions who had an ideological issue with giving a tax break to small businesses.
The point, of course, is that using Dublin hotel prices to justify a move that would damage thousands of small businesses around the country who are literally light years removed from Dublin hotels, was risible.
The decision has had an impact, but worse is likely to follow.
On the surface, 2019 was another good year for the tourism sector in the sense that overseas visitor numbers hit a new high.
However, beneath the surface, it proved more challenging.
It is estimated that despite the record number of overseas visitors, the tourism spend was down around 1.8%, reflecting a change in the composition of the overseas market.
The UK visitor share has been falling rapidly, and the growth in North America and Europe has been stronger in numerical terms.
However, there is a lively debate about the CSO numbers and whether UK visitors or European and North American visitors spend more.
Which nationality is more frugal, and who shares the starters, is widely discussed among restaurant owners and others.
Earlier this week, in conjunction with its annual conference in Galway, the Irish Hotels Federation released data showing that overall hotel occupancy rates in 2019 increased slightly to 73% from 72% in the previous year.
However, these statistics hide significant regional differences.
Dublin had an average capacity of 82% but the occupancy rate was 53% in the midland region; and 65% along the much-vaunted Wild Atlantic Way.
Simultaneously, hotel capacity is increasing at a significant pace.
We are also seeing a lot of restauranteurs experiencing trading and financial difficulties for a variety of reasons.
Tourism is an industry that employs around 260,000 people.
That is a lot of jobs.
However, the most important attribute of the sector is that much of this employment is in rural areas, where not a lot else tends to happen outside of the peak tourism season.
Unfortunately, as we look ahead to the coming year, it does promise to be more challenging from a tourism business perspective.
As I have written over the past couple of weeks, Brexit has not gone away as an issue and promises to come back and bite us in the leg at some stage.
The Covid-19 virus is starting to gather momentum and is starting to cause significant dislocation, with the Italian experience this week worrying.
If these trends continue, air travel could become much more challenged.
From Ireland’s perspective, it means that more Irish might stay and holiday at home, but this will not compensate for the likely downturn in foreign visitors coming into the country if the virus continues to gather momentum at the current alarming rate.
Domestic tourism operators are also faced with significantly higher costs of doing business, with insurance costs, commercial rates, and rents, and labour costs a pressure point.
Labour shortages could also become an even more significant issue, although the new immigration laws in the UK could work to Ireland’s advantage.
All in all, 2020 could turn out to be a more challenging year for what is a vital component of the Irish economy.
Policymakers need to take care and address issues such as insurance costs before it is too late and reverse the flawed decision on the Vat rate in Budget 2019.
