The Government currently subsidises the hospitality sector to the tune of €0.5 billion every year, thanks to the 9% VAT rate which was introduced in 2011 during the downturn. But in its quarterly economic monitor report, advocacy organisation Social Justice Ireland says this is no longer justifiable.
Eamon Murphy, economics and social analyst with Social Justice Ireland, said the 9% VAT rate is a fairly blunt instrument and applying a single VAT rate to an entire economic sector makes it very hard to target the enterprises that need the reduced rate the most. He said a lot of people think the subsidised rate gives a VAT break to the likes of the small B&B and cafes on the Wild Atlantic Way but the nature of the tourism industry itself - and how concentrated so much of its turnover is in the large hotel chains and the hotels in the big towns and cities - means they are the ones which benefit most from the 9% rate.
Mr Murphy said the second issue Social Justice Ireland has with the reduced VAT rate is that while it is quite acceptable for governments to use methods like this to incentivise employment, it questions the wisdom of doing so in a sector which has such a high proportion of employees earning below what is needed to have an acceptable standard of living. He pointed out that the concentration of minimum wage employment is the highest in the accommodation and food services sector and about half of those working in the sector earn less than the Living Wage.
Adrian Cummins, the chief executive of the Restaurants Association of Ireland, has said recently that Ireland should retain the 9% VAT rate because it is on a par with most EU countries, it has helped create over 55,000 full time jobs and businesses who have a narrow tourism window, rely on it. Eamon Murphy agrees that while the VAT measure did create jobs when visitor numbers coming here were down substantially, he noted that the average hourly earnings of hospitality workers has increased by just 5.8% over the last 10 years, well below the national average of 8.1% It is also the sector with the second lowest number of paid hours per worker, at just under 25 hours a week, he added, coming after education. He said this adds to concerns about the ability of these workers to achieve a socially acceptable standard of living.
Mr Murphy said there is much more effective and more efficient ways to incentivise tourism in Ireland and the Government could do an awful lot with that €500m including building more cycling greenways, and rolling out decent rural broadband.
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