Eoghan O'Mara Walsh: A national policy on tourism is overdue

Escalating costs of business allied to significant capacity concerns mean that the year ahead is likely to be a challenging one for Irish tourism

Sun, 07 Apr, 2024 - 18:40

Eoghan O'Mara Walsh

Now that St Patrick’s Day and Easter are behind us, we are heading into the traditional tourism season — Ireland’s largest indigenous industry and biggest regional employer is hopeful of a prosperous year, but regrettably circumstances seem to be conspiring against that outcome.

Some of those circumstances are of the government’s own-making and therefore the good news is that it is within their gift of resolving.

Escalating costs of business allied to significant capacity concerns mean that the year ahead is likely to be a challenging one for Irish tourism. Demand signals may be strong from North America but other business sources across Europe, Britain, and indeed the domestic market are likely to be much softer.

A recent report by economist Jim Power laid bare the significant increase in costs on tourism and hospitality enterprises because of government labour policy.

The suite of measures coming into effect this year — including the move to a living wage, enhanced sick pay, pension auto-enrolment, and others — is collectively set to add €456m to the payroll of tourism and hospitality businesses this year and a whopping €1.4bn by 2026. And, of course, this is above and beyond any regular wage trends.

No responsible business owner has an issue paying employees better terms for the valued work that they do, particularly within a high cost of living context, but for the full burden to be borne by employers is unfair. It also puts an enormous strain on the already thin margins of businesses that operate in this sector.

That is why the report calls for mitigation measures from government to ease the burden on businesses. These include a restoration of the 9% Vat rate, reform of employer PRSI, and an annual enterprise support package each year out to 2026.

Business supports from government announced in the last budget don’t go far enough and are certainly inadequate for the tourism and hospitality sector of which, according to the CSO, there are 40,000 businesses, most of whom are SMEs based in regional Ireland.

The call for the reduced Vat rate will be irritating to ministers who must have thought that this issue had been put to bed last year when they hiked it by 50%.

However, that was the wrong decision, as industry chiefs stated at the time, and so it has proven. On top of escalating energy, insurance and wage increases, it added another cost of business burden that the sector didn’t need. Those in the food services sector have been hit particularly hard with recent research from Deloitte Ireland showing a 142% increase in hospitality closures in the first three months compared to the same period last year.

Challenging outlook

Simon Harris, expected to be elected as Taoiseach this week, has made some very strong pro-business soundings since he became leader of Fine Gael.

A very positive early signal, and one that would help underpin a key economic engine of regional Ireland, is to restore the 9% VAT rate for the tourism and hospitality industry.

A mixed demand picture and significant cost pressures mean that the immediate outlook for the sector is challenged. But it is capacity constraints that risk putting a handbrake on its longer-term health.

With 75% of the Irish tourism economy made up of international visitation the cap on passengers at Dublin Airport will, by definition, stymie growth. Airlines are likely to lose patience and go elsewhere.

Undoubtedly, we must maximise the under-utilisation of Cork and Shannon airports but Dublin, as the main gateway to the island as well as a strategic hub between North America and Europe, must be allowed expand.

A long overdue national policy on tourism is due this year and it must match industry’s responsible ambition for the sector.

The industry would also like to see tourism reconfigured within the Government’s architecture – it would be a much better fit alongside Enterprise and Trade, a more appropriate departmental home for such a key economic sector.