Mr. Eoghan O'Mara Walsh:

I thank the committee for the invitation to speak today on this important issue, the rising cost of tourist accommodation in Ireland. ITIC is the main representative body for all tourism and hospitality stakeholders in the country. As committee members know tourism and hospitality is the country’s largest indigenous industry and biggest regional employer. There are 20,000 businesses in the sector, the vast majority of which are small and medium enterprises, SMEs. The latest Central Statistics Office, CSO, figures show that 246,500 people work in the industry. Some 70% of the jobs are in the regions.

Since Covid restrictions were lifted earlier this year, the tourism industry has rebounded strongly. However, there is widespread concern about the year ahead as energy costs, softening demand, and global economic challenges all point to a difficult period. ITIC estimates that there will be a fall in tourism performance next year compared with this year, so the recovery will stall. The situation is further complicated by the Government's over-reliance on tourism accommodation bed stock to house Ukrainian refugees and asylum seekers. Some 24% of all tourism beds nationally are contracted to the Government at this point, and that figure rises to 28% if we exclude Dublin. If this situation continues to obtain or worsens, there will be few tourism beds in tourism towns up and down the country next year and thus little tourism activity, meaning inevitable job losses and business closures. Tourism operators are prepared to play their part, but they cannot be asked to be the primary accommodation provider to the detriment of a broad industry.

I am here today to talk about the cost of tourism accommodation. The room rate of Irish hotels is published by STR, an independent global benchmarking firm. Such data is important as it unambiguously outlines what the consumer pays on average and how it compares with previous times and other countries. For example, the average price of a room in Ireland in September was €179, an increase of 25% on the same month pre pandemic. For Dublin, it was €202, a 22% increase on September 2019. The rate of increase since 2019 is significant and is driven by two main factors, namely, the cost of business and an acute supply shortage. In terms of rising input costs, EUROSTAT figures prove that Ireland is an expensive business environment with labour costs 32% and electricity costs 60% above the EU average, and Ireland having the second highest excise tax and second highest borrowing costs across the EU. It is self-evident that this drives up prices. In terms of an acute supply shortage, this was the case even before the Government took thousands of bedrooms out of the tourism economy and demand and supply is only set to be further challenged next year, putting more pressure on prices.

When it comes to costs, it is important to mention the impending VAT increase. ITIC’s view is that the 9% rate is the correct VAT rate for the tourism sector and puts us on an even keel with our European competitors. To increase the VAT rate would make us one of the most expensive tourism destinations across the EU, would damage our competitiveness and would add further cost to the system at the very time that industry is dealing with escalating costs elsewhere.

The economist Jim Power recently completed a report into the economic rationale for the 9% VAT rate and we will send committee members a copy of this shortly. In the report it is estimated that the increase in VAT will add 4.1% inflation to accommodation and food services and will cost 24,000 jobs. Despite cost increases, Irish tourism is very mindful of maintaining its value proposition and this is critical if industry is to weather the current storm and chart a path to full recovery. I thank members for their time. I am happy to answer any questions that committee members might have.