Mary Upton (Dublin South Central, Labour)
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Question 150: To ask the Minister for Arts, Sports and Tourism if her Department has been liaising with the Department of Finance towards resolving the current impasses in the hotel sector whereby the continued existence of a tax relief is acting as a barrier to exit which is imperilling the entire sector; and if she will make a statement on the matter. [14071/10]

Mary Hanafin (Dún Laoghaire, Fianna Fail)
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My Department has been in regular contact with the Department of Finance, both bilaterally and through joint participation on the Senior Officials' Group on Economic Renewal, regarding the current difficulties facing the hotel sector.

Towards the end of 2009, the Irish Hotels Federation commissioned Peter Bacon & Associates to report on the overcapacity in the hotel industry and the required elements of a recovery programme. One of the recommendations in the report is to allow relevant hotels to exit the industry without disadvantaging the initial investors in terms of availing of capital allowances. This is an issue primarily for consideration by my colleague, the Minister for Finance. However, I understand that the retrospective removal of the capital allowance claw back would give rise to serious credibility issues for the operation of such schemes and introduce a moral hazard into any future tax based incentive schemes. It would also make it very difficult to persuade the EU to allow the introduction of any future schemes for other industries in the event that such proves necessary. Furthermore, the original accelerated capital allowance scheme for hotels required EU State aids approval and the European Commission would have to approve any amendment to the scheme.

The Bacon report makes a number of other recommendations to address the estimated overcapacity of between 12,000 and 15,000 rooms in the hotel sector, many of which are directed to the industry itself. Where recommendations have been made for Government action, we have, where possible, sought to address them. For example my colleague the Minister for Enterprise, Trade and Innovation is examining the possibility of a Loan Guarantee Scheme and the Minister for Environment, Heritage and Local Government has established the Local Government Efficiency Review Group to review the cost base, expenditure and numbers employed in local authorities. Initiatives have also been taken to improve credit availability generally.

We can expect that 2010 is likely to be another tough year in the hotel sector, with further adjustments taking place as the market responds to excess room supply. This process will gain further momentum in the coming months as banks seek to clean up their balance sheets and dispose of under-performing loans. In that regard, it is generally accepted that NAMA will take over many loans associated with the Hotel Sector but will make its own decision as to how those loans and properties are to be managed based upon its own independent assessment of the market.

In this environment, managing costs will be key for hotels to survive the current downturn and Fáilte Ireland has implemented a range of measures to help the tourism industry to address costs and competitiveness issues. In particular, during 2009 Failte Ireland refocused its programmes to meet the enterprise support needs of businesses in the tourism sector in the current climate. In 2010 Fáilte Ireland will be investing almost €11 million in the form of direct supports and advice for tourism enterprises. The industry is responding well to the initiatives and the take up on the programmes is very positive.

In line with recommendations in the Bacon report, robust tourism marketing programmes have been put in place by Tourism Ireland and Fáilte Ireland for the international and domestic markets in 2010. The international programme, involving a spend of €43m, will place a particular priority on the British, German and US source markets while the biggest ever home holiday programme was launched in March with an associated budget of €4m.