Sunday, 1st March 2009                                                    

Urgent Actions Required to Boost Economic Activity
Competitiveness Key to Recovery, say Hoteliers

A temporary reduction in the standard rate of VAT by 5% over the next six months, an easing of the regulatory burden on SMEs and a prohibition on all increases in public sector prices and charges are among the stimulus measures called for by the Irish Hotels Federation (IHF) at its 71st Annual Conference in Killarney today. The IHF states that the Government does not have the luxury of time to wait for the Commission on Taxation’s report and the public service review before taking action to counterbalance the severe economic conditions.  Over 200 hoteliers heard from industry leaders that the time for procrastination and lack of action has now past and that clear leadership and urgent economic actions must be taken to tackle the national economic emergency head on.

According to Matthew Ryan, President, IHF, the immediate priority must be to stimulate activity in the wider economy over the short term and ensure measures are in place that prevent greater levels of economic decline. The Government must regain control of the public finances through a number of radical actions while seeking to boost economic activity, increase competitiveness and generate consumer confidence.  It must establish a robust framework for the correction of the public finances.

“All these objectives are interrelated in that a sound strategy for public financial stability will improve confidence both nationally and internationally. Measures to sustain existing economic activity such as credit availability and improved competitiveness will also enhance confidence in consumers and the business sector and providing a foundation for the restoration of business confidence and a return to medium term growth and development,” says Mr Ryan

The IHF maintains that a temporary reduction in the standard rate of VAT from 21.5% to 16.5% and a reduction in the reduced rate from 13.5% to 10% would have the combined effect of stimulating the wider economy and addressing the competitive imbalance that now exists between Ireland and the UK. Given the weakened value of sterling and the UK Government’s decision to reduce its rate of VAT to 15% last December, Ireland must act swiftly to level the playing field with our nearest neighbour. Any further delay could have detrimental consequences for the Irish economy.
           
Mr Ryan states that the measure could only be undertaken with a clear commitment or charter from retail businesses that they will display the pre and post VAT reduction prices for all services and goods. The IHF recognises that whilst reducing the VAT rates to 16.5%, for a six month pilot period, would require courage and could cost up to €1.5bn to the exchequer it would serve to stimulate spending and sustain employment.

            “A reduction in VAT will make goods and services cheaper and thus encourage spending which in turn will help stimulate growth. With over 64% of hotel bednights now coming from the home market and almost 17% coming from the Britain and Northern Ireland, the measure will have considerable additional knock-on effects for the tourism sector.”

The IHF is also seeking an easing of the regulatory burden to assist improve competitiveness. It suggests that SMEs should be temporarily exempt from regulations introduced in the past few years. Inspections of regulatory bodies should be suspended for a period of one year and VAT exemption levels should be increased to at least €150,000.
           

Mr Ryan states, “The tourism and hotel industry is experiencing an unprecedented economic environment with hoteliers facing dramatic reductions in revenue coupled with rising costs. Costs are a major determinant of competitiveness. There are significant costs associated with meeting escalating, multi-layered regulations across every aspect of the hospitality business. Whilst these regulations are important, a balance needs to be struck to ensure that businesses are not lumbered with excessive, bureaucratic and unnecessary regulatory requirements. We need a moratorium on those that can be paused without impacting on the quality of our product and service we provide.”

Other economic measures the IHF proposes include:

• increased rates of income tax generally and especially at incomes above €250,000
• additional reductions in the public sector paybill based on average salaries and not on headcount reduction
• rationalisation of the national, regional and local government structures
• substantial reductions in all other public expenditures
• a property tax on domestic dwellings

 
 “Tough decisions and unpleasant medicine are required now to reshape our economy to not only retain competitiveness but to secure current employment – we need to take the medicine now, otherwise the situation will spiral and worsen to a self fulfilled prophecy of doom. We are in the midst of a national economic emergency, and solutions must reflect the extreme seriousness and urgency of the situation,” he concludes.

The IHF states that the latest economic data and forecast (Feb 2009) starkly illustrate the worsening economic and fiscal crisis. In January the Government was forecasting a decline of 4.5% in GNP, however, the latest forecasts from Goodbody Stockbrokers expect a decline of 6.3%.  The Government’s expectation in January for 2010 was a decline of 1.1% while the February forecast expects a decline of 2.8%.  Including the impact of the recent €2B correction the Government, as of January, expected a deficit of €17.2B in 2009.  A deficit of €21.3B is expected. The additional slowing in the tax receipts was seen in the January Exchequer returns. Tax revenue dropped from €4.6B in January 2008 to €3.7B in January 2009, a decline of 19.0%.

FOR INFORMATION:
Siobhan Molloy/Eoin Quinn              086 8175 066 / 087 2332 191
Weber Shandwick

*The Irish Hotels Federation represents almost 1,000 hotels and guesthouses throughout the country, which in turn employ 58,500 people.