Tuesday, 2nd March 2004

IRELAND EXPENSIVE FOR DOING BUSINESS
Tourism Chief Tells IHF Annual Conference

The Irish Hotels Federation raised its growing concern at the cost of doing business in Ireland, stating at its Annual Conference in Killarney that it is the single biggest threat facing the success of the accommodation sector in Ireland today. Mr Dick Bourke, newly elected President of the IHF stated that whilst the sector was seeking every opportunity to be competitive by focusing on the areas where there is flexibility to reduce costs, overheads, rates, taxes and other price areas that the sector has no control over continue to spiral. He called on the Government to cap price rises on essential services which it controls, and to bring into line Ireland’s exorbitant VAT rate with that of competing EU destinations.

Mr Bourke, who today commences a two-year term as President of the Federation, commended the IHF members for positively contributing to the 3% decrease in the price of accommodation in the Central Statistics Office (CSO) figures, stating that no other service industry has recorded a drop instead of an increase in recent times. He added that despite numerous positive Government efforts to reduce the cost of insurance in Ireland, it is still running at twice the level of the UK and this was only one of a number of areas that requires urgent attention.

“In the past year local authority charges, including water charges, have seen an increase of between 5-30%, electricity 5.7% and gas some 6.4% while postage charges increased by 13%. These levels of increases combined with high VAT and excessive excise duties are the real drivers of the difficulties in competitiveness and the high costs for business operators,” Mr Bourke said.

“Tourism generates €5.2 billion in revenue, with €2.3 billion of this revenue finding its way into the Government’s coffers. This is a sector the Government should nurture. It must acknowledge its responsibility to assist in creating an environment where the cost of doing business is less onerous. It can influence and take appropriate action to address those areas that hit our bottom line and that we all know are exorbitant when compared to our EU counterparts. Our industry is continually seeking ways to be more competitive and in a way we are doing this with one arm tied behind our back as there is a limited number of avenues we can take to achieve this. The majority of our costs are set and we have no control over them at all,” he continued.

The Federation expressed its serious concern that there is no accountability with respect to rates and charges increases and fears that possible future increases would further erode the industry’s competitiveness.

“It is unsustainable for our businesses that the costs of essential services are increasing year on year way above the rate of inflation. Electricity, fuel etc are all major contributors to high overheads in not just our sector but throughout the business community. We want the Government to set about putting in place policies, which will cap the level of increases allowed. It should start immediately with Local Authority rates and charges, which have seen huge increases in the last number of years. We want a cap applicable to 50% of the previous year’s inflation rate being placed on these increases going forward. This would alleviate some of the cost pressures being experienced by businesses,” Dick Bourke continued.

Mr Bourke suggested that the Government should focus on reviewing the levels of VAT appropriate to the sector. Ireland’s accommodation VAT rate is the fourth highest in Europe and the second highest in the euro zone and is double that of Spain, France and Portugal. In addition Ireland’s excise duty is the third highest in the EU. These factors combined place Ireland at a severe competitive disadvantage for attracting overseas visitors.

“While the hotel industry will do its best to target new and repeat business for the coming season the Government will have to step up its efforts with regard to keeping costs down and ensuring that Ireland’s competitiveness is maintained not only for the hotel sector but for private enterprise as a whole. Ireland has the second highest VAT rate in the euro zone and other countries are moving towards reducing VAT. We would like to see the Government reduce hotel VAT rates to 10%, which would restore a degree of comparability with other EU countries. Currently at 13.5%, we are competing against France at 5.5%, Spain at 7% and Portugal at 5%,” Mr Bourke said.

The IHF is also seeking Government to allow VAT as a business input. Hotel and restaurant costs are recognised as legitimate business expenses in most EU economies, but not in Ireland. Irish hotels and restaurants are at a competitive disadvantage when dealing with EU business customers who are registered for VAT and can claim credit for it for similar expenses in other EU countries but not for business expenses incurred in the Republic of Ireland.

“Due to market conditions and the high cost of doing business in Ireland, there is low profitability in much of the hotel sector at present. This is notwithstanding that the quality and price of our accommodation product competes with and exceeds the standards available in most countries with whom we compete,” he said.

“World tourism is expected to double in the next 20 years, however unless Ireland’s competitiveness is bolstered it will be left behind as other countries reap the rewards of a tourism upsurge. The tourism industry is continually being urged to seek creative ways to be more competitive. The accommodation sector is delivering on that and meeting the challenge, which is borne out by the CSO figures, but to provide real competitive pricing needs positive Government intervention. The Government can’t have it both ways. It must assist in the overall ambition of Ireland becoming more competitive”, Mr Bourke concluded.

FOR FURTHER INFORMATION:
Siobhan Molloy/Niamh Boylan Tel: (01) 676 01 68
Weber Shandwick FCC (086) 817 50 66 or (086) 3809191