Up to €380m in lost taxes spent on 'holiday' homes

Colm Keena crunches the numbers to find the full cost to the State of tax concessions in exchange for often controversial resort developments.

The 1995 to 1999 Seaside Resorts tax scheme which led to the construction of more than 5,000 holiday homes and apartments in 15 seaside towns, cost the Exchequer an estimated €320 million to €380 million.

An expert inter-Departmental group that examined the scheme found that its effect was probably contrary to national tourism policy - it took from the unspoilt beauty of the areas affected. This is a critical issue in attracting foreign tourists.

The cost of the scheme is an estimate, as the Revenue does not collect its figures in such a way as to allow the exact cost to be calculated. The expert inter-Departmental group arrived at an estimate of between €320 million and €380 million in lost tax revenue.

The group conducted its work in 1999, and there is no revised overall figure available, though more extensive figures relating to the scheme were released recently. The cost of the scheme to the Exchequer was particularly expensive because most of the investors who benefited were individuals rather than companies.

The tax foregone was therefore higher because of the higher rates of tax that apply to individuals. Also, because the scheme involved capital allowances and double rent allowances, it was particularly expensive.

By way of comparison, the urban renewal schemes that ran between 1986 and 1996 cost the exchequer an estimated €466 million to €585 million.

The amount of money spent on developments under the resorts scheme was an estimated €760 million to £887 million. It was estimated by the inter-departmental group that, of this investment, 90 per cent of the money was spent on accommodation, with 80 per cent being self-catering accommodation (cottages and apartments).

As against 5,000-plus self-catering units, only 55 hotels and 20 guesthouses are estimated to have been built under the scheme.

The amount invested under the urban renewal schemes was estimated at €2.9 billion. This means the five-year resort scheme investment was, proportionately, on a much larger scale, especially when the size of the resorts and surrounding greenfield areas is contrasted with the cities affected by the urban scheme.

The relative failure of the scheme, in terms of encouraging the refurbishment of existing buildings and the construction of tourism facilities other than self-catering accommodation, was another blow in terms of the encouragement of tourism.

The scheme was originally suggested by the then chairman of Bord Fáilte in 1994. As the proposal was developed at Government level, the number of resorts was expanded and the range of facilities to which the tax scheme would apply was also extended.

This was largely the result of successful lobbying.

The outcome was a disappointment to the tourism industry in that the self-catering units that were the subject of the bulk of the investment under the scheme, are among the least advantageous of developments in terms of employment creation.

Also, the inter-Departmental group was of the view that many of the units built, though technically available for rent, were not truly so.

In fact, the houses and apartments were mostly private holiday homes for Irish people. Indeed, one unintended positive outcome of the scheme was that it may have encouraged people to build or buy personal holiday homes in Ireland during the economic boom, rather than buy holiday homes abroad.

On the other hand, the scheme had an inflationary effect on land prices around the resorts affected, making life difficult for local people.

A key issue which emerged was that the number of dwellings built were, in some resorts, huge in comparison to the local population. An example is Enniscrone, Co Sligo, where 379 houses and apartments were built in and around a resort with a population of just 692.