ESRI sceptical tourism industry still needs tax cuts

Feels current VAT rate of 9% in the sector "needs to be explored"...

The Economic and Social Research Institute (ESRI) has questioned whether the Irish tourism and hospitality sector still needs its current VAT reduction.

According to the Irish Examiner, Professor Alan Barrett, Director of the ESRI, told the Oireachtas Select Committee on Oversight on Wednesday:

"Learning a lesson from the past, all tax incentives should be reviewed periodically to make sure they are still relevant."

"We don't know if the tourism-related incentive introduced by the last government is still needed," Prof Barrett continued, "but the case needs to be explored."

The CSO revealed last week that Irish tourism has seen growth in both the number of people visiting and the amount of money they spend here for the first six months of 2016.

Total overseas visitors grew by 11% to 3.9 million – representing almost 400,000 additional visitors – in the first half.

Revenue from overseas visitors increased 9% to €1.93bn – an additional €165m for the Irish economy.

In August,  the Restaurants Association of Ireland called on the Government to freeze VAT in the hospitality sector for five years, arguing that more than 45,000 jobs have been created since the 9% rate was introduced in 2011.

A report by economist Jim Power showed 31,000 direct and 14,260 indirect jobs have come on stream as a result.

The future of USC

The ESRI also took the opportunity before the Oireachtas Select Committee to voice its opposition to the planned removal of the universal social charge (USC), which seems set to be phased out over the next five budgets.

Prof Barrett heralded it as an effective tax tool, saying:

“The USC has many desirable features as a source of revenue – progressivity, transparency and stability, to mention three. For this reason, we are unconvinced that moves to abolish the USC are wise...

"This is especially the case if the non-indexation of tax bands and allowances is used to fund any reductions,” he said.

“Even if the overall budgetary position looks healthy, we know from recent experience that the tax base can be fragile.

“For this reason, it is desirable that the tax base is broad and that reliance is placed on the tax heads which are less sensitive to the economic cycle."