RETURN TO GROWTH

Regaining the Momentum of Tourism Growth

IMMEDIATE STEPS NECESSARY

STATE TO:

• Increase immediately by €20 million, its investment in promotion of tourism to stimulate recovery from the events of 2001.
• Maintain and encourage increased international and internal access.
• Take steps to develop the National Conference Centre.
• Take steps to bring Ireland in line with other Eurozone countries Value Added Tax regimes and ensure that tourist services are maintained at the lowest rate of VAT and allow such VAT as a business input.
• Extend Local Authority rates to all commercial providers of accommodation.
• Make available Rollover Relief, of up to €2 million, against Capital Gains Tax for funds invested in a pension scheme.
• Put in place a cost-efficient business friendly insurance environment.
• Restore to license holders the effective Right to Refuse Service in the interest of order without fear of claims for damages.
• Provide Local Authority rates relief and tax relief for businesses that participate in approved Waste Management Schemes.

TOURISM – AN ESSENTIAL PART OF THE FABRIC OF THE IRISH ECONOMY

Tourism has long been one of Ireland’s most important industries and in recent years it has prospered.

• Over the past 12 years Irish earnings from tourism have grown at over 10% a year – the fastest growth recorded by any of the 15 prime European tourist destinations
• Between 1990 and 2000 the number of tourists visiting Ireland from overseas increased by 103% to 6.3 million, while overseas tourist revenues increased by 98%, after making allowance for inflation, to €3.7 billion.
• When domestic tourism receipts of €1.1 billion are added, the industry generates almost €4.8 billion worth of business, equal to 5.5% of Ireland’s Gross National Product. Three quarters of this comes from foreign tourists.

Spending of the typical oversees tourist Euro:

Almost half of the total tourism earnings,€2 billion,was paid to the Exchequer in direct and indirect taxes in 2001, €1.6 billion of which was generated by foreign tourists.

The extent to which Ireland’s tourist industry and the general economy are mutually dependent is seldom fully appreciated. Yet, as a major source of export earnings, tourism is also an important consumer of goods and services within the Irish economy. It is, therefore, one of the most important generators of new business opportunities.

• Every €100 spent by a tourist in an Irish hotel generates a further €48 within the Irish economy.
• In the past 10 years alone, one in every three new jobs in Ireland has resulted directly from the growth of the tourist industry.
• Between full time, part time and seasonal employment, tourism provides the equivalent of 145,000 full time jobs or one in every 12 jobs in Ireland today. Hotels and guesthouses account for 60,000 of these jobs.
• Information based on research suggests that over 40 jobs are supported for every €1m of out of state tourism expenditure and 28 jobs for every €1m of domestic tourism expenditure.

TOURISM – YIELDING A SUBERB RETURN

• Over recent years the investment by the State in tourism marketing yielded a handsome return in terms of additional expenditure in the economy.
• Visitor expenditure in Ireland represents an average return of 50:1 on the cost of the Government funded marketing programme. Investment in tourism marketing yields an immediate return on foreign earnings as is evidenced by the additional marketing expenditure of €8 million, in 2001 in the aftermath of foot & mouth which generated over €130m in visitor expenditure of which at least €75 million boosted Exchequer receipts.

Even if only half of this additional tax revenue resulted directly from this marketing spend (an extremely conservative estimate), that would still represent a return to the Exchequer of almost €40 million on an investment of €8 million - a superb return which would be the envy of every business.

It is clear, therefore, that Ireland’s tourist industry makes a substantial contribution to the country’s current economic prosperity.

THE EVENTS OF 2001

(Foot & mouth, economic difficulties in our overseas markets and the after effects of 11 September)

The World Tourism Organisation (WTO) estimated that in 2001 international tourist arrivals slumped by 1.3% to 689 million, the only significant decrease since World War II. Two factors combined to produce this decline – the global economic slowdown that began at the end of 2000 and the 11 September terrorist attacks in the US. The Irish 2001 experience on international arrivals was further damaged by the foot & mouth crisis which resulted in 5% drop in arrivals from January to August (during the same period world-wide arrivals grew by 3%).

THE FUTURE POTENTIAL OF TOURISM

Stimulated by rising levels of personal income world-wide, increasing leisure time and declines in the cost of air travel, it is estimated that in 2000 the tourist industry world-wide was worth around US$4,000 billion, representing 10.7% of world output (GDP). Receipts for international tourism climbed, worldwide, to US$476 billion in 2000 and within Europe to US$232 billion. Europe remains the largest tourist market in the world, accounting for 58% of all arrivals. It is widely expected that this positive trend will continue for the foreseeable future.

World-wide tourism leaders expect the recovery process, experienced in January & February 2002, to continue and expect staggered improvements to take place by mid year in Europe, Africa, the west Mediterranean and the Caribbean to a greater or lesser extent in each case. As a result of this apparent resilience of tourism demand the WTO stands firm in predicting the tripling of world-wide and the doubling of European tourist arrivals between 1995 and 2020, as well as projecting that the milestone of 1 billion international arrivals will be reached in 2010.

If Ireland is to share in this growth it will have to have in place:

1. A pro-active adequately funded destination marketing strategy overseas;
2. Adequate and competitive international access;
3. The necessary tourism infrastructure.

The country must also:

1. Promote and maintain the quality of our environment;
2. Ensure that Irish tourism does not suffer from the loss of relative competitiveness.

OPPORTUNITIES AND THREATS

• Ireland’s remote and unspoiled countryside, the absence of pollution, its culture and heritage and the outgoing, friendly nature of its people are key attractions for many visitors. They are especially important to those who are of most value to Ireland’s economy - “high yield” visitors.

These visitors are of particular value because:

• Their holiday plans are significantly less affected by downturns in the global economy than other, more price sensitive tourists for whom holidays abroad represent by far the largest single discretionary element of their household budgets. For the latter, when times are hard the holiday is often the first item to go.
• High yield visitors typically travel abroad at least twice a year and their spending patterns while on vacation tend to be consistent.
• They provide greater returns per unit of cost than other visitors. They do, however, expect to enjoy high quality facilities, including accommodation and restaurants, and an overall excellence of environment throughout their stay. To the extent that we fail to protect the important attributes, which make Ireland special for such visitors could undermine the very foundations of this important sector of the economy.

MAKING THE MOST OF OUR OPPORTUNITIES

The Irish Hotels Federation, in common with other parties interested in the development of the industry, is keen that the solid achievements of the past decade should form the foundation for further profitable growth. Our national aim must be to optimise the benefits to be derived by the Irish economy from the anticipated growth in tourism world-wide by adopting a clear focus on maximising the sustainable contribution to the Irish economy which tourism can make.

Crucially, it also requires a national understanding of those characteristics, which make Ireland special to such visitors and a consensus about the steps required to protect them.

The Irish Hotels Federation believes that, if we are to achieve these goals, as a nation we also need to:

• Immediately implement a strategy of recovery from the effects of the negative impacts in 2001 on international tourism to Ireland.
• Radically re-assess the way we think about tourism. We compete on world markets and our strategies should clearly reflect this. Many people, even within the Irish tourist industry, have little awareness of the activities of our competitors in relation to our customers and potential customers.
• Improve the way we co-ordinate both the development and the marketing of all elements of Ireland’s tourist “product”.
• Formulate a vision for the future of Irish tourism. This vision should be shared by all the key players in the industry and espouse aims which, while stretching, are achievable within a decade.
• Set clear objectives and performance targets for the short, medium and long-term which, will result in that vision being realised. Performance must be closely monitored and targets regularly modified in the light of changing patterns and trends in Irish and international tourism; static plans lead to missed opportunities.
• Intensify the focus of our national development and promotional strategies.

As part of this we must:

• identify our key competitive advantages
• identify prospective “high yielding” tourists who should then be targeted by highly focused, cost-effective marketing
• increase overall investment in marketing Ireland as a destination
• overcome barriers to increasing competitive access to the island of Ireland
• identify ways in which tourism could be developed with a particular view to increasing the sustainability of the industry
• develop national structures to foster the development of tourism as a coherent, unified industry.

RECOVERY STEPS TO STIMULATE THE RETURN TO GROWTH OF THE IRISH TOURIST INDUSTRY

As Ireland develops the strategies needed to optimise the longer-term value of tourism a number of immediate actions are necessary. Some are urgent, and some address crucial business environment difficulties which threaten the survival of not just tourism but many other industries.

The actions necessary include:

• An immediate increase in state investment in promotion of tourism to stimulate recovery from the events of 2001.

In April 2002, the funds available to promote Irish tourism, for the 2002 season, in our two largest overseas market, Britain and United States of America, have virtually all been spent. A recent phenomenon in the markets has been an increase in the level of later bookings and an increase in the degree to which the level of bookings follows promotional activity in the markets.

The Irish tourist industry spends approximately €134million per annum in the international marketing of its products. The amount allocated to Tourism Ireland Ltd for destination marketing for the entire 2002 season of €27million is inadequate to face the current challenges. The level of this budget was set at the beginning of 2001 in advance of the difficulties of that year being realised and in a much more benign environment. In addition to the challenges of recovery now facing Irish tourism, competing destinations in our key international markets have substantially increased their financial resources for increased marketing activities. Britain recently launched an additional international advertising campaign costing up to €65million, half of which is provided by the British government. The Travel Industry Association of America has launched a US$20 million high-profile advertising campaign to encourage travel to and within the United States. Canada has committed an additional US$14 million for an aggressive tourism marketing strategy targeting the East Coast of the United States and the British market. Scandinavian countries have substantially bolstered their marketing budgets to encourage travel to northern Europe.

To meet these marketing challenges and to maintain an effective voice for the promotion of Ireland in our key international markets, the Government should immediately make available to Tourism Ireland Ltd an additional €20 million to fund extra marketing activities and to support and incentify additional air routes from our key markets of North America, Britain and mainland Europe.

The experience of 2001 clearly shows the benefits of additional investment in marketing. If the Government were, now, to allocate an additional €20 million to tourism marketing there is a reasonable possibility that this investment could result in an extra €300 million of tourism activity in the country. At least €180 million of this would end up back in the government coffers.

Maintain and Encourage Increased International and Internal Access

It is vital that international air and sea carriers are adequately incentified to maintain and increase the level of international access to Ireland. The facilities available to these carriers should enable their providing competitive convenient and frequent services. During 2001 the withdrawal by Aer Lingus of its services to and from Newark and Baltimore and Delta’s withdrawal of its New York service to Shannon and Dublin, will result in a reduction during the peak summer season, of over 5,000 seats per week on the crucial US to Ireland air routes. This is a 21% reduction in capacity. The Government has to do all within its power to ensure that there is no further reduction in the level of direct access from the US to Ireland. In addition, every effort must be made as soon as possible to incentify an increase in capacity to the pre-2001 levels.

Ireland, as an island, is totally dependent for access on international air and sea routes and, in the case of North Atlantic on air routes. The experiences of other tourist island destinations should be closely examined and specific note taken of their methods of maintaining adequate international air access routes.

Consideration should be given to making a special case to the EU highlighting the vulnerability of the island of Ireland to any reduction in access.

Low-fare efficient operating airlines have become a growth phenomena in recent years particularly on routes with flight times of less than two hours. The development of this type of air transport is totally dependent on the availability of low-cost fast turn-round facilities at airports. The Irish Hotels Federation welcomed the decision of the Government to instruct Aer Rianta to develop Pier D at Dublin airport as these facilities are particularly designed for the fast turn-round of aircraft and that this facility would be available in good time for the 2003 season. The incoming government is now called on to deliver on this commitment and to overcome any operating barriers which might have presented themselves which could delay the development.

The development of reliable, efficient and frequent schedules of flights to regional airports is crucial in our aim to encourage the spread of tourism throughout the regions. The current Public Service Obligation subsidy for air services to regional airports should be maintained in such a way as to make it attractive for independent airlines to strive to build passenger traffic in anticipation of developing viable routes. This growth in traffic to regional airports will improve tourism and business access to the regions as envisaged in the National Development Plan 2000-2006.

Roads also play a particularly important role in the provision of access to the more peripheral areas of Ireland which heavily rely on the tourist industry.Therefore the Government should continue to give priority to delivering on time the road projects set out in the National Development Plan and ensure that obstacles to the timely delivery on these projects are identified as early as possible and a solution found to overcome them.

Develop the National Conference Centre

The absence of a national conference centre is a major deficit in the tourist infrastructure of Dublin City. It is a major inhibitor to efforts to attract an increased number of higher spending tourists.The Government must immediately ensure that Exchequer funding is provided to build a state of the art conference centre at a Dublin city-centre location.This development would rectify the present position in which Dublin under performs compared with similar European cities, in attracting association and business conferences. In conjunction with the development of a new dedicated conference centre in Dublin a dedicated conference sales unit should also be created with a ring-fenced budget. This unit would promote Dublin as a destination for international conferences and ensure that there are a substantial number of conferences on line for the new conference centre when it opens.

Take steps to ensure that tourist services are maintained at the lowest rate of Value Added Tax and allow such VAT as a business input.

It is essential that Ireland maintain the lowest possible rate of Value Added Tax on hotel services in order to maintain a competitive position with our competitors for international tourists. At present Value Added Tax charged on accommodation is amongst the highest in the EU at 12.5%, against 5-7% in countries where tourism is also significant activity, such as France, Spain, Portugal and the Netherlands. With greater transparency in European prices, due to the introduction of the Euro, and the growing role of the Internet, transparent competition is becoming common place. The Government must act now to ensure a level playing field with our competitors within the Euro-zone.

It is vital to ensure that costs are competitive to our European and non-European counterparts. VAT on hotel accommodation in Ireland is currently at 12.5%, which is the fourth highest in Europe and next to Germany the second highest in the Eurozone.

Our competitiveness is further eroded in the conference and corporate sector where Ireland is the only country in the Euro-zone with a VAT rate of over 10% where VAT is not allowed as an input for registered businesses.

Hotel and restaurant costs are a valid and necessary expense for many businesses and yet VAT on such expenses are not allowed as inputs. Ireland should follow the example of many other EU countries and allow the VAT element of such legitimate business costs as inputs by registered businesses. Countries that allow such inputs include Austria, Denmark, Germany, Hungary, Finland, Netherlands, Spain, Sweden, Switzerland and UK, all of which are in competition with Ireland.

European VAT Rates on Hotel Accommodation

Include all Commercial Providers of Accommodation as rateable premises for the purposes of levying Local Authority rates. . The application of Local Authority rates only to registered accommodation (hotels and guesthouses) continues to give over 16,000 unregistered commercial providers of tourist accommodation (approved and unapproved B&B premises and short term let apartments and self-catering units) an unfair advantage. The IHF once more calls for a ‘level playing field’ and for unregistered operators to be included as rateable premises. This would result in additional, much needed, revenues of over €30m for Local Authorities.

Rollover relief against Capital Gains Tax should be available for up to €2 million where it is invested in a pension fund for the benefit of the person retiring from business or his or her dependants.

Tax legislation provides a measure of relief where an individual disposes of “chargeable business assets” on “retirement”. The relief applies where the consideration for the asset does not exceed €476,250.

This relief is of little use to members of the Irish Hotels Federation because of the current value of even the smallest hotel or guesthouse would be in excess of €2.5million, which in effect means that the relief cannot be availed of.

The IHF believes that the claw back provisions, as presently structured, will act as a brake on the development of the hotel industry and will hinder its development over time. To aid in the process of transferring the business, rollover relief should be available for up to €2million where it is invested in a pension fund for the benefit of the person retiring or his or her dependants.

Put in place a cost-efficient business-friendly insurance environment and assist businesses affected by the collapse of the Independent Insurance Group.

The cost of insurance in Ireland grew by an average of 48 % in 2001 and the trend is continuing with estimate increases ranging from 50 % to 200 % being charged for 2002.

No business could bear this exorbitant level of increases, which are unsustainable. As insurance protection to cover major business risks, is a necessary and in many cases essential requirement, many businesses face the possibility of being underinsured, or in some cases, having no insurance and are exposed to financial ruin.

Insurance costs in Ireland are between three and six times higher than those of its EU competitors. A significant portion of this goes to pay the legal and administrative costs associated with claims.

The principal reasons for the current high level of premiums include:

• Exorbitant legal and administration fees, which can absorb 40-60% of, total cost of claims.
• Higher compensation awards than most other countries.
• An ever increasing compensation culture which is being fed by solicitors promoting their services on a no win no fee basis.
• An increasing incidence of exaggerated and fraudulent claims.
• The lack of competition within the insurance industry.

To address these issues and provide an environment in which responsible business can progress, the following measures should be put in place:

• Immediately set up a Personal Injuries Assessment Board to take much of the claims settlement procedure out of the costly legal system.
• Put in place a Book of Quantum similar to the system that operates in the United Kingdom, which should help to alleviate the uncertainty that presently exists in the legal system with regard to awarding cost.
• All personal injury claims should be supported by a written affidavit of the claim and individuals who participate in proven fraudulent claims should be subject to criminal proceedings.
• Insurance companies should be obliged to notify businesses at least 30 days in advance of the level of renewal of premiums and should not be allowed to make settlements of claims without recourse to the insured.

Among the businesses, which suffered from the collapse, in June 2001, of the UK based Independent Insurance Group, where at least 30 family-owned hotels. This reflects a failure of the Irish Government to have an effective method of regulating insurance companies allowed to write business in Ireland. These affected hotels took out insurance in good faith only to find that there were no funds available to meet liability claims when they occurred.

• The Government needs to reactivate immediately the Insurance Compensation Fund, which was set up at the time of the collapse of PMPA in 1984 and apply it to settling claims against businesses, which had been insured with the Independent Insurance Group.

Restore to license holders the Effective Right to Refuse Service in the interest of order without fear of claims for damages.

While the Equal Status Act 2000 was positive legislation to outlaw discrimination and racism in Irish society it is being undermined by a section of society using it as a vehicle for self interest and reward.

Businesses are entitled to refuse service under the Equal Status Act. However, equality officers are presently interpreting this act in an unbalanced manner, skewed against professional hoteliers attempting to run an orderly business in a safe and pleasant environment for the benefit of customers and staff. Section 15 of the Equal Status Act was intended to facilitate hoteliers and publicans to run an orderly licensed business. Actions taken by licensees in compliance with the licensing code should not be regarded as discriminatory and decisions taken by professional hoteliers and publicans in interest of maintaining order should not be subject to claims for damages under the Equal Status Act.

Legislation should be introduced either under licensing law or equal status law to allow proprietors of premises to take in good faith the appropriate decisions in the interest of order without fear of claims for damages.

Provide Local Authority Rates Relief andTax Relief for businesses who participate in approved Waste Management Schemes

The IHF recommends a reduction in Local Authority rates payable by businesses that participate in approved waste management programmes. The cost to local authorities could be recouped from the revenue from the plastic bags tax and the new land-fill levy.

In 1998, 80 million tonnes of solid waste was produced in Ireland from all sectors. The municipal and industrial sectors are estimated to have produced over 15m tonnes of waste in 1995.

The policy statement (Department of Environment’s Waste Policy statement 1998) “Waste management – Changing our ways” sets out targets, which include the following:

1. A diversion of 50% of overall household waste away from landfill.
2. A minimum of 65% reduction in biodegradable waste consigned to landfill.
3. Recycling of 35% of municipal waste.
4. Recycling at least 50% of commercial and domestic waste within a five year period, with a progressive increase to at least 85% over fifteen years.
5. An 80% reduction in methane emissions from landfill, which will make a useful contribution to meeting Ireland’s international obligations.
6. Rationalisation of municipal waste landfills, with progressive and sustained reductions in numbers, leading to an integrated network of some 20 state of the art facilities incorporating energy recovery and high standards of environmental protection.

It is vital that alternatives are found to landfill, and incentives must be offered to encourage waste reduction and recycling.

In addition incentives should be offered to businesses to purchase their own waste treatment equipment, thus encouraging the safe environmentally friendly treatment of waste. This assistance could be in the form of “free depreciation”, giving 100% allowances in the first year on any expenditure on approved waste management equipment e.g., compactors, composters, special storage bins etc. All of these would greatly aid the facilitation of not only waste reduction but also waste recycling.