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12.11.2012

 

 

BUDGET 2013 MUST ENSURE TOURISM ACHIEVES A SUSTAINED RECOVERY

Hoteliers Call for Measures to Restore Financial Stability and Improve Tourism Competitiveness

 

  • Measures needed to improve access to equity finance for hotels
  • 9% tourism VAT rate must be retained into 2014
  • Marketing funding for Fáilte Ireland and Tourism Ireland must be maintained

 

The Irish Hotels Federation (IHF) today called on the Government to take decisive action in the forthcoming budget to ensure tourism achieves a sustained recovery and lives up to its potential to act as a major engine for growth and job creation in the wider economy. In its pre-budget submission, the IHF called on the Minster for Finance, Michael Noonan, TD, to introduce measures to improve tourism competitiveness, enable more effective marketing of Irish tourism and restore financial stability to the hotels sector, which employs more than 50,000 people directly across every county and town.

 

With overseas visitor numbers down almost 3% year to date, Tim Fenn, Chief Executive, IHF stated that declining visitor numbers, particularly from the British market, underscore the challenges faced in promoting Ireland as an attractive tourist destination. Acknowledging the significant boost provided by the 9% tourism VAT rates, he called on the Government to commit to retaining this rate into 2014 in order to remove any uncertainty for international tour operators, who typically book accommodation capacity up to 18 months in advance.

 

Mr Fenn urged the Government to maintain current levels of marketing funding for Fáilte Ireland and Tourism Ireland and to support specific initiatives to address the poor performance of tourism outside the key urban areas. He called for specific funding to promote special events such as the Emerald Isle Classic American football game, which saw tens of thousands of Americans travel to Ireland in September - contributing to a 3.6% increase in visitors from North America.

 

Commenting on the severe restrictions faced by the sector in accessing equity finance, Mr Fenn urged the Government to put in place targeted measures in the Budget to enable hotels to attract new equity and operate on a more sustainable long-term footing. He stated, “Banks will only lend to investors to buy or refinance hotels if a sufficient amount equity capital is already on the table. However, the current reality is that at a severe lack of equity funding is preventing investment. This market failure must be addressed as a matter of urgency by the Government otherwise it risks jeopardising future growth and job creation in the wider tourism industry.”

 

Key IHF Tourism Proposals for Budget 2013:

  • Announcing the retention of the 9% rate of tourism VAT rate for 2014
  • Maintaining current levels of funding for Fáilte Ireland and Tourism Ireland
  • Introducing measures to improve access to equity finance in the hotels sector
  • Establishing a bank for reconstruction and development directed at the SME sector
  • Reducing local authority rates by 30% for hotels
  • Abandoning the proposed statutory sick pay scheme

 

The IHF states that tourism is Ireland’s largest indigenous industry and a critical component of the export economy, accounting for €5.3 billion in spending and €1.3bn in taxes in 2011 and representing 4.5% of Ireland’s services exports. The derived spend is enormous for the Government with approximately 65 cent in every euro going back by way of some form of tax or levy. Overall, tourism provides an estimated 196,000 jobs, equivalent to 11 per cent of total employment in the country.

 

Retaining 9% VAT rate for tourism into 2014

Through targeted measures supporting tourism, the Government has recognised the role the industry has to play in contributing to recovery in the wider economy. In particular, the decision to reduce the rate of VAT to 9% for tourism products has provided a much needed boost for the sector by allowing hotels and guesthouses retain and create jobs in an otherwise turbulent environment.

 

The IHF’s position is that any uncertainty around its retention into 2014 would become a barrier to securing sustained growth in visitor numbers as international tour operators book some 18 months in advance. The Federation is calling on the Government to view the 9% tourism VAT rate as more than a short term stimulus and commit to retaining the reduction into 2014, thereby providing greater medium term certainty on pricing of hospitality products.

 

Improving access to equity finance in the hotels sector

The IHF is calling on the Government to help improve access to equity finance through three targeted initiatives that would help restore financial sustainability to the sector:

 

  • Extension of the existing Employment and Investment Incentive Scheme to include hotel and guesthouse businesses, thereby providing incentives to private investors to invest equity.

 

  • Creation of a new Hotel Restructuring Fund that would use funds from the National Pension Reserve Fund and the sale of state assets to invest in hotels that have a commercially sound prospect for profitability, growth and providing sustainable employment.  

 

  • Creation of a Qualifying Investor Fund for Hotels targeting private investors, especially from abroad, seeking to invest in Irish hotels but not wishing to own hotels directly.

 

Maintaining the real levels of funding for Fáilte Ireland and Tourism Ireland

The IHF is calling on the Government to maintain current levels of marketing funding for both Fáilte Ireland and Tourism Ireland in an effort to increase overseas and domestic visitor numbers in the coming years. While business levels have increased in key urban areas in 2012, performance has been poor for hotels and guesthouses across many parts of the country, resulting in a two-tier recovery in the market. Funding for specific long-term marketing measures is required in Budget 2013 to address this imbalance and, in particular, to restore growth in tourism from the British market.

 

The IHF is also calling for the Government to allocate a dedicated budget in 2013 aimed at giving holidaymakers new reasons to visit Ireland and supporting specific events such as the Emerald Isle Classic American football game, which saw tens of thousands of Americans travel to Ireland in September 2012.

 

Establishing a bank for reconstruction and development directed at the SME sector

The worsened business environment since the economic downturn has made it difficult for hotels and guesthouses to obtain required levels of bank credit despite the various credit initiatives introduced by the Government. This is limiting the capacity of otherwise viable businesses to invest in marketing and operational quality standards – which, in turn, has major implications for the ongoing potential of tourism in Ireland. The IHF’s position is that the Government must address these ongoing difficulties in Budget 2013 as part of a medium-term, higher growth strategy by establishing a new bank for reconstruction and development which would be directed at the SME sector.

 

The IHF is calling on the Government to do more to ensure financial institutions facilitate the economy by supplying much needed credit to viable businesses. This could be achieved on a risk sharing basis with banks and/or direct lending by Government using the banking system as an agent coupled with a more extensive credit guarantee scheme or equivalent.

 

Reducing local authority rates by 30% for hotels

The IHF is seeking interim provisions in Budget 2013 for a 30% reduction in Local Authority rates applicable to hotels and guesthouses until such time as properties have had their rateable valuations revised as provided for in the Valuation Act 2001.

 

The system of Local Authority funding is based on an antiquated taxation system of commercial rates that sees Local Authorities extract taxes relative to the size of premises without sufficient recourse to the profitability of the business operating in that property. With hotels paying €90 million a year in rates alone (€1,500 on average per bedroom, regardless of recent trading circumstances), these excessive charges are crippling hotels and guesthouses across the country.

 

The Valuation Act 2001 was intended to review the excessive charges being demanded by local authorities; however, after almost 10 years only three of the 88 local authorities have had their areas re-evaluated and revised in accordance with this Act. The IHF is seeking for the Government to enact legislation to overhaul and streamline the property revaluation process and introduce fairness into the method of valuing hotels and guesthouses, taking into account both income and expenditure. In the local authority areas that have been re-valued, hotels have received reductions in the order of 30%. 

 

Abandoning the proposed statutory sick pay scheme

The proposed statutory sick-pay scheme will weaken cost competitiveness, particularly in the labour intensive hotels sector – thereby jeopardising business sustainability and risk job retention by small businesses – the very businesses that should be the backbone of any future recovery and growth in employment. The IHF is calling on the Government to abandon this proposal and adopt a more pro-business approach aligned with its stated commitment to job creation.

 

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