Debate on tourism tax break heats up before Budget

Ahead of Budget day on October 11, the Irish Congress of Trade Unions (ICTU) has called on the Finance Minister Michael Noonan to abolish the special 9 per cent VAT rate for the hospitality and tourism sector, which was introduced in 2011 in an attempt to boost activity and create jobs in a sector badly hit by the economic crash.

Industry groups welcomed the retention of the measure in last year's Budget and are continuing to press for it to be maintained. They argue that the tax break has been a success, maintaining and creating jobs in the sector, and that many sectors of the industry – especially outside the big cities – still need support. The uncertainty caused by Britain's vote to leave the EU has also been cited more recently to bolster their case.

But a surge in tourism figures and rising hotel rates have led others to askwhether the 9 per cent rate has done its job and now subsidising a profitable sector.

Today, ICTU said the measure had done nothing for workers in the sector, claiming that it was still characterised by low pay and precarious work.

Congress general secretary Patricia King said the Government should abolish the tax break in Budget 2017, as key elements of the sector were enjoying strong profits while wages and working conditions remained poor.

“This tax break was introduced in 2011 and we were told that it would cost some €350m and that benefits would be passed on to consumers and workers. In fact, it has cost the taxpayer more than €2.1 billion to date, with an annual cost of €620m," she said.

King also criticised key employers in the sector for refusing to engage with a Joint Labour Committee set up to negotiate pay and conditions for their staff.

In 2011, the High Court struck down legislation covering Joint Labour Committees (JLCs), which had set minimum pay rates for specific sectors such as fast food outlets, hairdressing, hotels and agriculture. As Enterprise and Jobs Minister, Richard Bruton then introduced new legislation on JLCs after a Labour Court review of the system, but business groups such as IBEC, the Irish Hotels Federation and the Restaurants Association of Ireland have argued that all JLCs should be abolished.

The Economic and Social Research Institute also recently raised questions about the measure. The think-tank's Professor Alan Barrett told an Oireachtas budget committee earlier this month that all tax incentives should be reviewed periodically to make sure they were still relevant.

There is, however, a commitment in the programme for government to retain the lower rate, but only if prices are competitive. In June, theMinister of State for Tourism Patrick O’Donovan told the Sunday Business Post that retaining it was the “right thing to do” in the October budget. "But the greatest challenge is that we don’t repeat the same mistakes as we did before and become uncompetitive. We need to be so vigilant as things improve that we do not go down the rip-off route,” he said.

In its pre-Budget submission, the Irish Tourism Industry Confederation said the retention of the rate was "more important than ever in light of the recent Brexit vote, which has the potential to greatly impact Irish tourism". It argued that the 9 per cent rate was particularly important to helping the regional spread of tourism, adding that only two euro zone countries had equivalent VAT rates higher than 10 per cent.

Earlier this month,the head of the country’s biggest hotel chain, Dalata, said it would be "madness" to end the scheme. Pat McCann said there would be no gains to the state from increasing VAT back to 13.5 per cent and it would damage job creation by the hospitality industry. He was speaking as Dalata posted a 33 per cent surge in first-half revenues to €130m and pre-tax profits of €18.2m.

The Restaurants Association of Ireland says that while the tax break has not been the only factor boosting employment in the sector, it has made a significant contribution. The association wants it kept on to maintain stability in the sector, arguing that there is still a 'three-tier' recovery, with big difference between the capital, other urban centres and rural areas.

The most recent official figures from the Central Statistics Office show that 145,800 people were employed in the accommodation and food services sector in the second quarter of this year, up from just under 120,000 at the end of 2011. The most recent CSO figures on earnings in the sector show that average hourly earnings rose by 2.9 per cent compared with the second quarter of last year to €12.47. Despite that increase, hourly earnings are still below the €12.53 figure recorded in the second quarter of 2011.

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