Hoteliers blame Cowen's tax error for over-supply
Published 17/05/2010 | 05:00
HOTEL owners are blaming Taoiseach Brian Cowen for contributing to the massive over-supply in the market by leaving a tax break open long enough for 200 new hotels to be built.
Mr Cowen is claiming he did everything he could by closing down the property tax break for hotels and other facilities when he became Finance Minister in mid-2004.
But the Irish Hotel Federation (IHF) said Mr Cowen had not immediately shut down the lucrative hotel tax breaks in his 2006 Budget -- but had opted instead to phase them out over a longer period.
"A fundamental mistake was made by the Minister for Finance in allowing a year for people to make their planning applications," its chief executive John Power said.
IHF president Paul Gallagher revealed yesterday that this had led to a frantic rush to build more hotels before the tax break was terminated.
"Between 2006-2008, 206 hotels opened in Ireland with 15,171 rooms," he said.
Mr Cowen had already given hotel investors a year's warning of his intentions by announcing a review of the tax breaks in his 2005 Budget.
"There was a red marker that the tax allowance was going to be removed and that would definitely have focused the mind of anybody who was starting a hotel -- because the tax allowances were significant," Mr Gallagher said.
In his speech on the banking crisis in DCU last week, Mr Cowen cited his decision to abolish a wide range of property-based tax incentives in his 2006 Budget. "Without these actions, the crisis in the Irish economy would have been far worse," he said.
But Mr Cowen had put in place "transitional measures" that allowed for those with planning permissions for hotels to secure full tax relief in 2006, 75pc tax relief in 2007 and 50pc tax relief in 2008. The tax break allowed hotel investors to write off 90pc of the capital cost of the property over seven years, but led to an unsustainable boom in hotel construction.
The IHF has called on the National Asset Management Agency to close up to 100 troubled hotels to take an over-capacity of 15,000 hotel bedrooms out of the industry to bring the sector back to viability.