The tourism industry waited anxiously for the past four months for a Government stimulus to help save our largest indigenous employer. We were told a radical plan was on the way, of which the tourism industry would be an important part. The day of reckoning came last Thursday. To say the stimulus plan was a disappointment to those of us who are so passionate about the Irish tourism industry would be an understatement.
While the extension of the wage subsidy scheme to March 2020 is welcome, the specific measures announced for the tourism industry are short-term, short-sighted and lack ambition by Government to save the Irish tourism industry and help it grow again.
Our tourism industry is well used to crisis. In the past 20 years we have survived foot and mouth, the Icelandic ash cloud and the post-2008 financial crash and recession. Never before though has the entire industry closed for four months. The vast majority of the 270,000 people who normally work in tourism have had to avail of the pandemic unemployment payment since Covid-19 arrived in Ireland. For four months not a euro was generated in 95 per cent of tourism businesses because of the lockdown.
When the industry started to reopen at the beginning of July, there were no weddings, conferences or large events and no international tourists. There was confusion and uncertainty as to when any of this business would recommence.
Hotel occupancy in Ireland in July was 36 per cent, compared to the usual 90 per cent, with Dublin occupancy at just 16 per cent. Many tourism businesses will have only 25 to 50 per cent of their normal trade over the next few months, and will take two to three years to recover from the pandemic.
The specific tourism measure announced by Government on VAT is a reduction of 2 per cent on the higher rate, down to 21 per cent for six months. For hotels, only alcohol sales come under this VAT category, representing less than 20 per cent of most hotels’ revenue.
A VAT reduction of 2 per cent on alcohol is unlikely to create a large increase in sales, therefore unlikely to save any additional jobs in tourism. Our VAT rate on accommodation and food is the second highest in Europe at 13.5 per cent. Considering the cost of doing business in Ireland for an SME is much higher than in most European countries, having a VAT rate higher than 28 European countries makes us an even more uncompetitive tourism destination.
The UK recently reduced its tourism VAT rate to 5 per cent, meaning that hotels in Northern Ireland have a VAT rate 8.5 points lower than in the Republic. Germany and Portugal have recognised the importance of their tourism industries, also introducing VAT rates of 5 per cent. Back in 2011, when Ireland had an unemployment rate of 15 per cent, the Government reduced tourism VAT to 9 per cent.
Tourism began to grow rapidly with international visitor numbers reaching a record high of 9 million, and 70,000 new jobs created in the sector. Fáilte Ireland estimated that 23 cent in every €1 generated in tourism expenditure went back to the exchequer in tax revenues.
Budget 2019 saw the Government increase the VAT rate back to 13.5 per cent, in what was a short-sighted decision in the lead up to Brexit. Many rural restaurants and cafés announced their closure last winter, following that VAT increase. And that was before the pandemic.
Stay and Spend
One of the other July stimulus measures is the Stay and Spend Incentive, a measure allowing consumers claim a tax rebate of up to €125 if they spend up to €625 on holiday accommodation and food from October 2020 to April 2021.
While this scheme may sound like a nice idea, I don’t believe it is the best way to spend taxpayers’ money. The July stimulus should be about getting as many people back to work as possible and securing their jobs for the longer term.
The reality is that many regional tourism businesses operate at a loss from November to March each year and make their profit from April to October. In 2020, tourism businesses will have very weak cash flow to support them through the winter. A reduction of VAT on alcohol until February 2021 and a holiday tax rebate for consumers until April 2021 may help in a very small way over the winter months, but when those measures finish, tourism businesses will be left high and dry.
Tourism will undoubtedly take two to three years to recover from the pandemic. The industry needed longer term, ambitious measures to protect the 270,000 jobs in tourism – a 9 per cent VAT rate for a minimum of three years, a specific low interest loan scheme for the tourism sector and a substantial fund to effectively market Ireland abroad when international travel resumes.
Without a longer-term strategy from Government, hundreds of tourism businesses will close permanently this winter and thousands of jobs will be lost.
A politician once told me there were no votes in tourism. Yet tourism is at the heart of many rural towns and villages around this country. It has kept the lights on when there have been few other sources of employment.
Walking down any main street next February when many pubs, restaurants, cafés and tourism retailers have closed and premises are boarded up, I believe the loss of tourism will be felt hard in these communities. Losing these small businesses will wipe away much of what is special and unique about the Irish tourism product. Our industry also employs many young people and the likely loss of jobs in our sector will have a devastating effect on youth unemployment.
The Irish tourism industry attracted nine million visitors to this country last year, generating €9.3 billion in revenues for the economy and €2 billion in taxes for the exchequer.
This year, tourism revenues are forecast to be down by €7 billion. The industry has repaid the exchequer many times over for any investment it has been given. The State has supported other sectors such as banking and agriculture in their time of greatest need. This is tourism’s time of greatest need. It is time for the Government to step up and do the right thing.
Sean O'Driscoll is chief executive of of iNua Hospitality