Paul Connaughton Snr (Galway East, Fine Gael)
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Question 5: To ask the Minister for Arts, Sport and Tourism if he has made representations to the Department of Finance to reduce VAT on tourism products in budget 2007; and if he will make a statement on the matter. [34875/06]

John O'Donoghue (Kerry South, Fianna Fail)
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The Deputy will be aware that issues of taxation are a matter for the Minister for Finance and that I am not at liberty to discuss the possible contents of the next budget.

Ireland has a distinct model of economic development. A key part of this model is a low direct tax take on income which is balanced by a higher tax take on consumption. This approach has proven very successful and I would be slow to advocate that we move away from it. For our overseas visitors, however, there is a different perspective. They pay VAT and excise duties on items consumed here but do not have the benefit of the lower direct taxes. We are conscious of this, particularly given the competitiveness challenge facing tourism in the recent past. For this reason, my Department maintains an active dialogue with the Department of Finance on certain budgetary fiscal issues bearing on the costs of tourist consumption.

In the previous budget, I am pleased to note there was no increase in the VAT and excise lines that impact on tourism. This is a benign outcome on the broad tourism front. On a narrower front, there are a few fiscal issues that we continue to pursue with the Department of Finance, one of which is the subject of a separate question later. All Ministers responsible for specific economic sectors would probably wish to improve the fiscal position of their sectors but, in the heel of the hunt, every budget has to strike a balance between a wide variety of different needs and priorities, of which tourism is only one.

Having said that, we should bear in mind that our tourism companies pay low rates of corporation tax, their employees pay relatively low rates of income tax, our hotels have benefited from generous tax incentives and this year's Exchequer allocation for tourism services is at an all-time high.

Jimmy Deenihan (Kerry North, Fine Gael)
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The Minister did not respond to my question on competitiveness in his previous response. The VAT rate is putting pressure on the competitiveness of our tourism industry. Our VAT rate of 13.5% on both accommodation and food is one of the highest in Europe. In Spain the rate is 7% on accommodation and food, in Portugal it is 5% on accommodation, in Greece it is 8% and in France it is 5.5% on accommodation. Throughout Europe the average rate is 10% on accommodation and food.

Excise duty on wine is also forcing up prices here. The excise duty on a bottle of table wine, for example, is €2.50. In Portugal, Spain and Greece, our main competitors, it is nil while in France it is 3c. The duty on a bottle of sparkling wine is €4.10 in Ireland while in France it is 6c. Our VAT and excise duty rates are making Irish tourism less competitive. I appeal to the Minister to make a special case to the Department of Finance to consider reducing them to some extent in the forthcoming budget.

The Minister referred to business tourism. I urge the Minister to make a special case for allowing people who come to this country for conferences to get a refund of VAT on their return. If people attend a conference in Belfast, for example, they will get a refund of VAT paid. Promoting business tourism in this country is at a major disadvantage because there is no refund scheme available for business tourists.

John O'Donoghue (Kerry South, Fianna Fail)
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Recently, I launched the review of the North American market. The survey was comprehensive and established that visitors to Ireland are generally happy with accommodation prices. Only 10% complained about accommodation prices. According to the review, the three issues about which people complained most were eating out in restaurants, golf and car hire. However, while people complained about Ireland's competitiveness in those areas, it is interesting to note that when comparing Ireland with other destinations, their complaints were not as robust. They understand that while Ireland has become more expensive, it is not fair to say it has become more expensive than many other similar destinations.

Ireland will never be a low cost mass destination; it never was. Our product is for a more discerning, sophisticated customer and that has been the tradition. Nonetheless, the competitiveness issue is important and must be watched carefully. One in seven holidaymakers remains critical of Ireland's value for money and that negative trend has continued for the past few years. This relatively critical view of value for money is also reflected in how overseas tourists see Irish prices compared to prices in their own countries, with 16% of holidaymakers in 2005 considering Irish prices to be higher than expected. However, holidaymakers are less critical when comparing prices in Ireland with those of other competing destinations. Accommodation does particularly well in that regard.

It is important that everybody in the industry understands the need to try to keep prices down in so far as possible. It is not possible to discuss what will be in the budget. However, I have been in discussions with the Minister for Finance for some time with regard to business tourism. He has been examining whether it would be possible to do something about VAT for business tourists. The existence of VAT on conference business, overnight stays and so forth puts us at a disadvantage in comparison with some of our competitors. In that context, the building of the new national conference centre will be an enormous boost, particularly for Dublin. I anticipate that it will attract an additional 30,000 business visitors each year, which will be worth €30 million to €50 million to the Dublin economy.

It is particularly important that prior to the completion of the conference centre, at the latest, we should resolve the issue of VAT on business-related visits. Naturally, I wish the matter would be resolved earlier rather than later. We are having discussions in that respect.

Jack Wall (Kildare South, Labour)
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Last week a concert was held in Dublin and the hotels racked up their prices for it. One hotel that I have frequented on a number of occasions was charging €195 for a single room. It is unthinkable that a hotel would increase the price of a room to that extent. The price was not negotiable. We are supposed to be competitive in this sector. If a business person comes to this city, seeks overnight accommodation and is confronted with that type of cost, it is hard to understand how the Minister can say accommodation is not an issue. We discussed the racking up of hotel prices with the Minister previously. Why is a mechanism not put in place to deter that practice, in the interests of tourism and business-related visits?

John O'Donoghue (Kerry South, Fianna Fail)
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Registered hotels are obliged to notify the maximum rack rent they will charge for the following season to Fáilte Ireland. They are prohibited from charging above that rack rent. The difficulty highlighted by Deputy Wall relates to hotels which for a long period of the year charge X amount and suddenly increase their price to X plus Y, up to the maximum amount of the rack rent which they have notified to Fáilte Ireland. Invariably this is done when demand is highest. It is a practice of which I disapprove but the hotels are legally entitled to do it, having notified the maximum rack rent. They are not entitled to exceed the maximum rack rent.

The reason visitors to the country have little complaint about the cost of accommodation overall is the variety of accommodation available. There is a choice of really good accommodation at reasonable rates throughout the country. This is appreciated by most people. Nonetheless, I accept Deputy Wall's point that there have been times, and it continues as a practice, where rates are driven up unreasonably because demand is high. It is part of the market.

Jack Wall (Kildare South, Labour)
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Is the rack rent a percentage increase that can be imposed as long as the hotels notify Fáilte Ireland?

John O'Donoghue (Kerry South, Fianna Fail)
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The hotel is entitled to notify the maximum rack rent and sets the rack rent itself.