Friday 22 June 2018

Three billion reasons why the tourism industry should lose subsidy overnight

There is no longer any justification for the hospitality sector's huge tax break. It should be scrapped in the forthcoming Budget

BOOM-TIME: The tourism sector is one of the economy’s great indigenous success stories, so why is it still receiving a €500m tax break every year?
BOOM-TIME: The tourism sector is one of the economy’s great indigenous success stories, so why is it still receiving a €500m tax break every year?
Dan O'Brien

Dan O'Brien

Half-a-billion euro is a lot of money. That is how much the Department of Finance estimates a six-year-old tax break for the hospitality sector costs annually. The de-facto subsidy is likely to have cost close to €3bn to date.

The rationale for giving the sector a preferential rate of value added tax in 2011 was reasonable in many ways. The economy was then at a low ebb. The hospitality sector was suffering. Although it employed around 115,000 people at the time, it had lost 20,000 jobs in net terms over the previous three years. Many of those employed in the industry had/have low skills levels, a group that was particularly badly hit by the recession. Giving this industry a boost made sense, particularly as the sector was and is so geographically broad based.

But giving one industry preferential treatment does not come without costs and complexities. The cost in cash terms, as mentioned above, is high. The 'opportunity cost' - what could be done with the money not collected in VAT - is also significant, particularly given domestic and EU rules limiting the amount the Government can increase spending by without raising additional taxes to fund it. Ending the tax break for the sector would significantly expand the fiscal space in Budget 2018, which will be unveiled in just eight weeks' time.

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