DONEGAL hotels and guesthouses have renewed their call on the Government to retain the nine per cent tourism VAT rate in response to very challenging economic headwinds facing the sector over the next 12 months.
General Manager at the Sandhouse Hotel in Rossnowlagh, Paul Diver, has deep concerns about the impact the proposed VAT increase would have on an industry still recovering from the pandemic.
He added that it will undoubtedly lead to job losses in Donegal.
Mr Diver who also represents the Irish Hotel Federation Donegal Branch told the Donegal News that the costs of running a hotel are increasing continuously, “almost on a daily basis”.
“Hotels have tried as much as possible to bear that cost but if the VAT rate goes up hotels just won’t be able to bear it, that will have to be added on to the customer,” he explained.
This will have devastating repercussions as the county will then be tarred as an “expensive place to holiday”.
“We are still competing very much with Northern Ireland, we are trying to get business to come here but if our prices go up by 4 or 5 per cent we just won’t be competitive anymore,” he said.
Mr Diver added that they aren’t seeing the same volume of business from the north as they would have seen back in 2019.
He explained how the current nine per cent vat rate allowed hoteliers to absorb a lot of the costs over the last couple of years, and it meant hotels were able to avoid increases, maintain their prices and remain competitive for overseas visitors.
But unfortunately the proposed 13.5 per cent VAT would be the third highest in Europe, which is higher than 29 other countries that the Irish industry is competing with. “This is not feasible,” he added.
Mr Diver explained how the reintroduction “couldn’t have come at a worse time”, not only because of the rising cost of living but because it comes at the start of the tourism season.
“In cities they have business 12 months of the year but here in Donegal we have a very short, but very important tourism season that starts at the end of March,” he said.
Tourism is one of the largest employers in Donegal, “it employs people in every corner of the county, from Dunfanaghy to Dungloe, in every town and village there are people employed in tourism.”
He went on to explain how there is a huge knock on affect when someone comes to stay in a hotel for a weekend as it ripples out into the wider economy.
The tourist will visit the local shops to buy the paper, they will eat a delicious dinner which has been supplied by the local fishmonger or they will wander to the local craft shop to pick up a gift.
New industry research carried out by the Irish Hotels Federation indicates that the sector is now at a crucial juncture as it wrestles with economic slowdowns in key overseas markets, escalating business costs and the impact of inflation on discretionary consumer expenditure.
The potential increase in the tourism VAT rate by the Government is a major worry for the sector, with 81 per cent of Irish hoteliers stating they are very concerned about the impact this would have on the outlook for their businesses.
Despite an uplift in tourism during the second half of 2022, hotel room occupancy remained significantly lower than pre-pandemic levels.
Another pressing challenge for the hotels sector is excessive energy costs, with 85 per cent of hotels and guesthouses very concerned about the impact this is already having on their business.
Many hotels have experienced increases of upwards of 300 per cent in energy bills compared with 2019 levels.
It is estimated that energy costs for the average hotel are now running at 10-12 per cent of total revenue compared with an average of four per cent in 2019.
Hotels have also experienced unprecedented increases across their entire cost base over the last year including average increases of 25 per cent in the cost of food supplies, beverage costs up 16 per cent, linen and laundry costs up over 30 per cent and insurance costs up 18 per cent.