Tourism sector - Noonan should leave Vat alone

As an island nation on the remote western periphery of Europe, modern Ireland has always depended on tourism as a central plank of the economy.

But when the country was brought to its knees by the madness of the so-called Celtic Tiger, tourism suffered with most other industries. The ‘land of a thousand welcomes’ looked for a spell as if it would become a graveyard of hotels and restaurants.

In desperation, hoteliers slashed room prices, the ‘Gathering’ was announced in a bid to bring home the far-flung Irish diaspora and in an inspired move Finance Minister Michael Noonan surprisingly reduced Vat for the hospitality sector from 13.5% to 9% in 2011.

There can be little doubt these initiatives helped avert disaster in a sector which at its peak had employed up to 250,000 people. Those who had not closed their doors, including the owners and employees of restaurants ranging from small cafes to Michelin star venues, in tandem with the management and staff of family-run hotels and multinational conglomerates, tightened their belts, breathed a sigh of relief, and lit candles in praise of Mr Noonan; a rare event indeed.

And that is why people in the industry are now scratching their heads in bewilderment as to why the same minister is thinking of scrapping the 9% Vat rate which has been a lifesaver for the hospitality sector.

At a time when this country’s reliance on the tourism sector was never greater, any increase in a Vat rate ushered in as an emergency measure, would be tantamount to kicking the industry in the face and driving freshly honed nails into its coffin. Why the minister is considering this is at best perplexing and at worst economic vandalism.

In justification, Mr Noonan reminded delegates at a recent conference that when he introduced the 9% rate “people were very surprised and it worked and it created a lot of jobs. It has reinforced and got a lot of the tourist industry back again and the tourist industry is now growing”.

Yet, with Budget 2014 looming, his explanation for a possible reversal was that “if I don’t bring it back I have to find something like €360 million elsewhere”.

You can be sure Mr Noonan will neither touch the income of highly paid executives nor the 12% corporate tax rate enjoyed by foreign industrial investors. The envy of Europe, the latter is key to why so many world leaders in the hi-tech sector have settled here.

Indeed, in yesterday’s job announcement, computer company Dell said it plans to create 300 jobs in a new financial services branch in Dublin. Dell’s importance to Ireland is simple — it employs 2,500 people in Dublin, Limerick and Cork. Ireland’s importance to Dell is simple — it is the 12% corporate tax rate.

Of greater significance, perhaps, the Noonan initiative of 2011 led to 9,000 new jobs in the hospitality sector, according to the industry. If the Vat reduction were reversed, the fear is many of those jobs would be forfeit, effectively undermining the coalition’s much vaunted job creation programme which has so far achieved little.

Significantly, Tourism Minister Leo Varadkar has concerns about it being withdrawn too soon, while Fine Gael backbenchers oppose increasing the 9% Vat rate. Before he undermines a vital homegrown sector which employs tens of thousands of people, Mr Noonan should reconsider making a negative policy U-turn that will inevitably cause job losses and seriously damage Ireland’s fragile tourism industry.