TAX ON TOURISM

New government: same practices. In case there was any doubt about the retention of the back of an envelope as the favoured calculating tool of politicians and the Department of Finance, the latest working paper by the Economic and Social Research Institute (ESRI) should allay the fears of those Luddites who shun change.

“The Vat on hotels and restaurants is going down, which is good for the owners of restaurants and hotels,” the report says. “It’s also good for everybody who visits hotels, which is mainly foreigners, but bad for the taxpayers because we have to raise the same amount of money elsewhere or borrow it.

“This is pure redistribution of money from the taxpayer to the tourism sector. Maybe someone did a back of the envelope calculation on this, but nobody did an analysis before these things were done.”

Cutting the Vat on tourism-related services and getting rid of the €3 airline travel tax have cost the economy more than it took in since its introduction, according to the ESRI cost-benefit analysis, which is reported in The Sunday Times.

The ESRI says the decrease in Vat on accommodation, restaurants and recreation activities from 13.5% to 9% would result in British tourists spending between €20m-€34m more in Ireland but this would be more than offset by the estimated €43m foregone as a result of the new measure.

Getting rid of the €3 airline tax would cost €16m but might bring in as little as €9m; €16m is the most the exchequer could expect from the measure. Although the study focused solely on British tourists, the ESRI says the effect would be the same across the board.

“The ESRI’s working paper concluded that ‘the Irish government is wrong to seek to stimulate inbound tourism through tax breaks’,” the newspaper says.

Instead, the ESRI actually recommends an increase in travel taxes and Vat.

Failte Ireland said it would not dismiss the report but it didn’t agree with its conclusions, saying it “needs a little more exploration”.