Budget 2010 Must Stem the Tide of Tourism Collapse, says IHF

2009 Was a Disastrous Year for Hotel and Guesthouse Sector

30 October 2009

The Irish Hotels Federation (IHF) is urging the Government to introduce measures in the forthcoming budget to sustain and consolidate Ireland’s tourism resource as a driver of economic recovery. In its prebudget submission, the IHF calls on the Minster for Finance, Brian Lenihan, TD, to reduce the burden imposed on hotels and guesthouses by penal public sector charges and local taxes, to vigorously promote cost competitiveness and to address the capacity and credit problems with the tourism sector.

Key Tourism Proposals for Budget 2010:

• Freeze Public Sector charges at 2008 levels; reduce local authority rates by 30%;
• Abolish €10 air travel tax; avoid tax increases in tourism related products and services;
• Target marketing funds toward the British market and business tourism;
• Extend the employment subsidy scheme to the tourism sector;
• Ensure the availability of appropriately priced credit to the hotel/guesthouse sector;
• Facilitate an orderly reduction in excess hotel capacity through adjustment of the tax regulations concerning tax allowances for new hotels.

The IHF calls for a three year freeze on all public sector charges at the 2008 level and a 30% reduction in local authority rates charged to hotels and guesthouses for 2010. The IHF maintains that Ireland can no longer afford to indulge in complacent taxation policies and states that there is an urgent need to abolish the €10 air travel tax imposed earlier this year. It urges the Government to target marketing funds toward the British market and the generation of new business tourism in advance of the opening of national conference centre in 2010.

John Power, Chief Executive, IHF states “Hotels and guesthouses are struggling to deal with excessive rates imposed by local authorities that have little regard to the disastrous conditions facing businesses. So far, the Government’s approach to tourism has shown inaction and an unwillingness to adapt policy to address the needs of tourism businesses which are struggling for survival. Budget 2010 provides the Government with an opportunity to deliver on its commitment to Irish tourism and ensure the survival of businesses in the hotel and guesthouse sector.”

Mr Power states that commercial rates are now an unbearable burden on hotels and guesthouses. “The entire commercial rates system is inappropriate and penalises business. There is no effective mechanism for revising rateable valuations in order to take account of the major worsening of economic circumstances, reduced revenue levels and an inability to pay among enterprises that now find themselves at the mercy of the monopolistic local authorities. Despite the adverse economic situation in 2009, over two thirds of county councils and city councils decided to increase their annual rates on valuation while none have introduced a decrease.”

As an immediate step, the Government should announce a country wide 30% reduction in Local Authority rates applicable to hotels and guesthouses until such time as the rateable valuations of these properties have been revised as provided for in the Valuation Act 2001.

The South County Dublin revision has been completed and Fingal revision, which is in progress, has resulted in the rates liability of hotels being reduced by in excess of 30%. Based on the pace of completing the revisions of rateable valuations since the Valuation Act 2001 came into effect in April 2002, it will take over twenty years to complete the revision process country-wide. This is without making any provision for the review of the revised valuations which the Act requires to be carried out every five to ten years.

The IHF calls on the Government to immediately abolish its ill-conceived air travel tax. Mr Power states, “As an island destination, we need to do everything we can to attract visitors here not create unnecessary barriers that make routes to and from Ireland less attractive. The risk of competitive disadvantage is heightened even more by competitor destinations which have removed travel taxes and other access-related levies and charges in response to their negative economic impact in the current downturn.”

The IHF maintains that the strategic policy and sectoral objectives for tourism must be to survive the recession and thereafter begin to recover market share in both domestic and international tourism. “Budget 2010 can begin this process by maintaining the current real level of activity funded by the Fáilte Ireland and Tourism Ireland’s international marketing budget. We need creative thinking and smart action when it comes to promoting Ireland across our key markets. The Government must initiate specific additional marketing activity to regain lost ground in the British market (down 16% year on year and 24% in August ) and to attract new business and conference visitors to derive maximum benefit from the availability of the national conference centre in 2010,” states Mr Power.

Employment Subsidy Scheme

The IHF maintains that hotels must be allowed to participate in the Government’s Employment Subsidy Scheme and that the Government must find a mechanism to provide hotels and guesthouses with targeted support for staff retention so that hotels do not lose the valuable skills they have built up that will position the sector for a return to growth.

Credit availability

The IHF calls on the Minister for Finance to ensure the urgent availability of appropriately priced credit to the hotel/guesthouse sector on a Government risk sharing basis with banks and/or direct lending by Government using the banking system as an agent. The extent of the financing crisis is borne out by a recent Mazars report which shows that, in the year to June 2009, 27% of hotels and restaurants had credit applications rejected by banks. As the economic situation worsened greatly over the year, this rejection rates is likely to be significantly above 40%.

Reduction in Hotel Capacity

The IHF calls for the removal of tax provisions through which hotel capital allowances claimed by investors are clawed back if the hotel ceases to trade within the seven year tax life of the hotel investment. The IHF maintains that these provisions act as a major ‘barrier to exit’ for inherently unviable ‘tax based’ hotel businesses which are kept trading only to protect the benefits of the capital allowances attached to the hotel.

Background to hotel financing crisis

The hotel sector is in a very difficult financing crisis with domestic and international tourism markets having declined greatly in the past year, and this decline will continue into 2010. Revenues have been squeezed by the combination of lower prices, excess capacity and low capacity utilisation rates. Costs have not significantly reduced. Consequently margins are under severe pressure.

In the month of August 2009, overseas visitors were 13% less than in August 2008. In the same period British visitors were down by 24%. In the Jan-Aug period, overseas visitors declined by 10.9% between 2008 and 2009. Hotels and guesthouses now depend on the Irish market for almost 70% of their bedroom business therefore the future sustainability of the industry depends on reversing the decline and creating growth in the business from overseas markets, particularly Britain.

Tourism’s contribution to the Irish economy

According to the IHF, tourism is Ireland’s largest indigenous industry, employing over 200,000 people across the country. Notwithstanding the recession, tourism made a direct contribution of €6.3 billion to the Irish economy in 2008, representing 4% of overall GNP. The main economic contributions of the tourism industry include:

• €4.8 billion in foreign exchange earnings in 2008 compared to €2.1 billion in 1995 and €4.3 billion in 2005;
• 7.4 million overseas visitors to Ireland in 2008;
• Domestic tourism expenditure of €1.5 billion in 2008;
• Annual national tourism revenues of €6.3 billion
• Tourism accounted for 4% of GNP and 2.2% of Gross Value Added
• Tourism generates 7% of services exports
• Tourism industry accounts for 200,000 full-time, part-time and seasonal jobs, of which almost 60,000 are in the accommodation sector alone.
• Provides a substantial entrepreneurial resource as the vast majority of tourism enterprises are small and medium enterprises.
• 925 hotels with 60,729 rooms.
• 337 guesthouses with 4,070 rooms.

ENDS

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