Tourism sector could be in ‘decline’ due to VAT rise

The State's tourism sector could be in decline, the boss of Fáilte Ireland has told The Irish Times, resulting from the Government's decision to increase the hospitality VAT rate in last year's budget.

The sector is expected to grow by between 1 per cent and 2 per cent this year, a far poorer outcome than had initially been expected with growth of 5 per cent forecasted at the beginning of 2019, according to Paul Kelly, the chief executive of the State's national tourism development authority.

A perfect storm in the sector including international sentiment, Brexit and the Boeing Max debacle will ultimately result in practically flat growth, according to Mr Kelly, head of Fáilte Ireland.

However, because tourism spend is calculated as a VAT inclusive figure, Mr Kelly surmised that the sector could possibly be in a marginal decline, resulting from the Government’s decision to increase the hospitality VAT rate from 9 per cent to 13.5 per cent.

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“I don’t think there was anybody including ourselves in the tourism sector who wouldn’t have preferred to see the VAT rate stay low. But, having said that, we have to acknowledge that a 9 per cent VAT rate was introduced as a temporary measure and it was probably left in place longer than was originally anticipated,” he said.

Mr Kelly said more accommodation is needed in Dublin, in particular. He said Ireland got caught in a situation where it was losing business because there wasn’t enough hotel capacity in Dublin. “We had a long period of time where demand was growing very fast and there wasn’t any supply growth. Now that supply growth is kicking in, but we need to be careful we don’t fall into that trap again,” he said.

Support programme

Addressing the impact of Brexit, Mr Kelly said the authority had engaged more than 3,000 businesses this year on its Brexit support programme. However, he estimates a no-deal Brexit could wipe out about €380 million in tourism revenues in the first year after the UK’s exit and result in the loss of up to 10,000 tourism jobs.

Mr Kelly said the authority had looked at previous tourism "shocks" to gain an understanding of the extent to which the tourism industry might be impacted in the circumstances that the UK leaves the European Union without a deal.

Having analysed the response to the 9/11 attacks in the US, the 2010 ash cloud grounding of planes after a volcanic eruption in Iceland, and the foot and mouth crisis, Mr Kelly said the authority’s best estimate was that about €380 million in revenue would be lost in an industry which produced about €7.8 billion in revenues last year.

His comments follow figures from the Central Statistics Office last week showing a drop in the number of British tourists to the Republic. Between April and June 985,000 trips were made to here from Britain, a fall of 3,000 on the same quarter in 2018.