November 2017        

Reduced VAT rate is a subsidy for hotels

Kieran Crilly

Sometimes things that don’t appear in the budget are more important than those that do. One of these was the retention of the VAT rate of 9 per cent for hotels and catering. This policy, introduced in 2011 to help the catering and hotel industries, costs about €500 million a year.
     At the moment the economy is growing strongly and there is no sign of a recession, but the rate was kept by the Government because of Brexit, even though employment in the industry grew by 5½ per cent last year and the number of tourists coming from abroad increased by 1½ per cent. Domestic tourism is also growing. Room rates in Dublin hotels have probably increased by more than 20 per cent in the last two years.
     The reduced rate applies to fast-food outlets like McDonald’s, Starbucks, Kentucky Fried Chicken, and Supermacs. It also applies to chippers and to Chinese and Indian takeaways. (These outlets supply food that is full of fat and are a major contributor to obesity—a growing problem in recent years.)
     It applies also to the foreign-owned coffee-shop chains, such as Starbucks, an American franchise renowned for not paying corporation tax, Costa, an English group, and Esquires, a Canadian chain.
     The subsidy applies also to exclusive golf clubs, like the K Club at Straffan, Co. Kildare, and the Old Head Golf Links in Kinsale. This is a misdirected subsidy for the rich, a subsidy to fee-charging golf clubs.
     The table shows how the 9 per cent VAT rate works as a subsidy for hotels.

Cost of a stay of one week (12–19 January 2018)

  Cost of a roomSubsidy per room per weekAnnual subsidy per room
Gibson Hotel€1,121€50.45€2,623
Shelbourne Hotel€2,601€117.05€6,086
Gresham Hotel€1,061€47.75€2,483
Continental Hotel€1,539€69.26€3,601
Westbury Hotel€1,900€85.50€4,446

     The cost of a stay in January is lower than in the peak season, so the figures in the table are in fact an underestimate of the subsidy provided by the lower tax rate.
     The average subsidy per room is €3,848. If one of these hotels had a hundred beds and received the average subsidy, the total annual subsidy would be €384,780.
     So for the big hotels the cut in the VAT rate is providing a large subsidy, and in recent years this has not been passed on to consumers, as prices in the hotel industry have been rising.
     The owners of hotels and restaurants are in general anti-union, and the industry is noted for low wages, part-time contracts, and zero-hour contracts.
     The €500 million could be used in addressing the housing crisis and providing more social housing. For example, if a house cost €250,000 to construct, €500 million could mean 2,000 extra housing units a year.

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