ABOLITION OF RATES & MORE EQUITABLE FUNDING
FOR LOCAL GOVERNMENT NEEDED

The Irish Hotels Federation (IHF) today called on the Government to fund local authorities in a more equitable manner stating that the commercial sector contributed 40% of the €3.4billion required by local authorities annually. The President of the IHF stated that it estimated an additional €500m would be required in 2004 and that local authorities could not keep calling on the commercial sector to foot the bill in a time when the hotels and other such service businesses were seeking avenues to remain competitive.

I n a detailed submission The Funding of Local Government in Ireland made to the Department of the Environment, Heritage and Local Government the IHF proposes essential reforms, which it says, will adequately fund the necessary activities of local authorities while at the same time ensure that the business sector is not overly penalised. It proposes that the existing rates system should be replaced by a system of local taxation that in the case of commercial enterprises should be based on profitability and not property valuations. In the case of individuals, a portion of current taxable income should be allocated as a local income tax to support local amenities.

Mr. Bourke stated there are substantial inequities within the rates system, in that it does not recognise the ability of different forms of enterprises to generate substantially different levels of revenue and profits from the actual size of the business premises.

“Rates are a fixed charge, incurred annually, that are based on notional property values and bear no relationship to the size or scale of the business or its ability to pay. A small accountancy or legal firm could generate over €1 million in fees from a small office, whereas a 40-bedroom hotel, which is a much larger building, having a similar income pays substantially more in rates. Turnover per square metre per annum varies across different businesses. It can be in the range of €1,000 per square metre per annum for hotel rooms, to €8,000 in certain high volume retail outlets, through to €10,000 for some professional services,” says Mr Bourke.

“The current valuation system does not recognise the wide variations in revenue or profit by different types of business and so the burden of rates is disproportional on businesses such as hotels and guesthouses where, in many cases, city or town centre locations are required, but where revenues per square metre are inferior to other businesses,“ he continues.

The IHF which represents over 1,000 hotels and guesthouses throughout the country employing some 67,000 people suggests that replacing the current system which is based on rates, charges and levies with a combination of:

Mr Bourke maintains that a corporation tax rate of about 2.25% on profits would provide similar funding to the current rates system, and the replacement of the current personal tax rates with “national” rates of 18% and 38% (standard and higher rates respectively), coupled with a 2% and 4% standard and higher rate of local income tax would fund local government adequately. “Given the buoyancy in current income tax and corporation tax receipts, it is our view that it would not be necessary to increase the current overall rates of taxation but merely to fund the local authority from the natural increases from these sources,” he states.

The IHF also proposes that all users of services, including water, would pay a charge related to the extent to which that service is used. The IHF points to the current “deficit” on water and sewerage services which at €154 million is largely attributable to the lack of user charges payable by the domestic sector. It also suggests that a new funding system could be complemented by improved efficiencies within local authorities. Specific proposals to provide better value-for-money in local authorities include:

Concluding Mr. Bourke said, “Our sector is struggling to be competitive amidst a high cost base. The Government appointed Tourism Action Plan Implementation Group states that there are many factors outside the control of our industry that need to be addressed to ensure competitiveness. We suffer from high cost inputs including the highest levels in Europe of indirect taxation and levies. Local authority rates and levies have been upwardly spiralling by up to 25% in this year alone for some services.”

“It is clear that the continued expansion of local government expenditure will result in disproportionate increases in commercial rates, levies and demands, and charges for water, waste disposal and other services used by the commercial sector, unless a different approach to funding is taken. Our submission contains proposals for spreading the burden more equitably, a major requirement of any system that is intended to provide a medium and long term solution to local government funding”.

For further information:

Siobhan Molloy / Niamh Boylan Tel: 01 6760168
Weber Shandwick FCC 086 8175066 / 086 3809191