Double blow for Irish tourism

Hotels and restaurants in the Irish Republic were hit by a double whammy in last week's Budget, with an increase in VAT and a reduction in capital allowance relief for the sector.

Ironically, the decision by Finance Minister Charlie McCreevy to increase VAT by 1%, bringing the new rate to 13.5%, came as his government urged hospitality businesses to keep down prices and become more competitive in the face of falling tourist numbers.

According to the Irish Hotels Federation (IHF), the VAT rise will increase costs and erode competitiveness even further. "This increase gives Ireland the second-highest VAT rate in the euro zone," said an IHF spokesman, "with other European countries having almost half the Irish VAT rate for accommodation." He cited Spain at 7%, France at 5.5% and Portugal at just 5%.

Henry O'Neill, chief executive of the Restaurants Association of Ireland, claimed that, with most members operating on profit margins of about 4%, they would have no option but to pass on the VAT increase in higher eating-out prices. For some, it could prove to be the final straw that would force them out of business.

Compounding the VAT difficulties is the minister's decision to slash the capital allowance relief for hotels. The IHF has urged him to think again, warning that the reduction "will virtually end the development of new hotels in Ireland and will be a major disincentive for existing hotels to upgrade their properties".

by Anthony Garvey