WELL-KNOWN Wexford hotelier Bill Kelly says that he would have to cut the size of his workforce at Kelly's Resort Hotel if Finance Minister Michael Noonan hikes the 'hospitality industry' VAT rate to 13.5 per cent in today's (Tuesday's) Budget.
'Since there is no appetite in the market to increase room rates our only option will be to reduce our labour force by 12 to 14 persons if the VAT rate is to increase to 13.5 per cent. This is shameful in a country screaming 14 per cent unemployment,' said Mr. Kelly, who employs 197 people at Kelly's Resort Hotel in Rosslare.
He said a VAT rate increase from the current nine per cent would be sheer madness in the current economic climate.
'For the first time in five years the industry was showing signs of growth, following years of massive decline (24 per cent in visitor numbers, 30 per cent in tourism revenue since 2008). Tourism has the capacity to play an important role in the regeneration of the domestic economy. Since the reduction of the VAT in 2011 it has created over 15,000 jobs in accommodation and food services. There is no quicker way to increase employment than through the hospitality sector, thanks to its labour intensive nature and regional economic impact. Little or no capital investment is required as the product already exists.'
Mr. Kelly said that like most other businesses, firms in the tourism sector have aggressively tacked their cost bases in order to remain viable.
'Hotels and restaurants have achieved significant reductions and passed these on to customers, but some problem areas remain. Many State-controlled or -influenced costs in particular have not come down; local authority rates and energy costs (up 50 per cent since 2005) remain a substantial burden, food costs have also increased substantially over the past year, up 6 per cent in 2013 alone. An increase in VAT will have a dramatic effect on our competitiveness with most of our major European competitors having lower VAT rates than Ireland.'
'My fear is that any further increase in costs or VAT will drive the hospitality industry towards a low-cost model.
'The only element of cost that we seem to be able to control is labour, you can see more and more establishments purchasing ready-made foods to reduce this labour cost.'