The Bad Luck of the Irish: TTC’s Gavin Tollman on Ireland’s VAT Increase

This is an opinion piece written for TMR by Gavin Tollman, the CEO of Trafalgar, Chairman of the Travel Corporation, and CEO of Brendan Vacations, which has specialized in Ireland travel since its founding in 1969.

One of the most challenging, and dare I say frustrating, aspects of being a leader in the global tourism community is accepting decisions made by national policymakers who simply do not comprehend the value of tourism in their own backyard.

Those of us within the industry understand the value of tourism and the critical role it can play in nation-building — from job creation to revenue generation, social stability to cultural preservation, and numerous other facets in between.

All too often our “product” — that of enriching, educational and empowering experiences bringing joy to countless lives through the love of travel — is seen as “non-essential.”  All too quickly is the sector judged without recognition of its component parts: employment and its impact on the economy overall, its role in solidifying national identity, and the immense sense of community and unity. To my mind, these are all essential ingredients, enabling the formation of cohesive and robust national sustainability at economic, social and environmental levels.

Ignorance it not bliss. In this case, it poses a profound risk to the future well-being of a nation’s people, when the country they call home is a valuable tourism asset. It diminishes the promise of a better world — one that is shared on the basis of discovery, diversity and unity.

One of the highest VATs in Europe
Why the fire in my belly? Simply this: The bad luck of the Irish. The government of one of the world’s most welcoming and enchanting countries has just increased its VAT on all tourism-related products and services from 9 percent to 13.5 percent. This hefty increase means that Ireland will soon have one of the highest rates of tax on tourism in the entire European region. With a short-term aim of raising additional revenue to cover increases in government spending, without alienating their local constituents, the long-term impact is nothing but negative.

How can it be that having had the foresight to reduce the VAT on tourism to 9 percent in 2011, the Ministry of Finance of Ireland now seeks to exploit the success resulting from the exceptional actions of those in Tourism Ireland? What a shortsighted way to manage one of the country’s greatest economic assets.

Easy money, it appears, to be taken from a sector which, thanks to the efforts of the Ministry of Tourism of Ireland and the tremendous efforts of the Irish tourism industry, has enjoyed unprecedented growth in visitation since 2011. 2017 saw an outstanding contribution from tourism towards national development, accounting for:

• 8 billion (USD9.9 billion), representing 3.6 percent of GDP (fiscal 2017)
• 10 percent of total employment (1 in every 10 Jobs is a tourism job), or the equivalent of 240,000 jobs
• 5 billion (USD12.9 billion) in visitor exports
• 6 billion, 11.0 percent of total investment

All of the above activity generates over EUR2 billion in taxes for the Irish Exchequer per annum. Clearly, from their perspective, that is not enough. Short-term gains are sadly now set to eventuate into what I believe will be long-term losses.

After almost eight years of building a better nation, Tourism Ireland and the entire tourism industry serving Ireland now has eight weeks (increased VAT effective Jan. 1, 2019) until its efforts are eradicated.

Watch this space for a decrease in competitiveness of the destination. Government revenues may generate more funds from increased VAT, but tourism and other interdependent sectors will endure significant losses. Agriculture, transport and creative industries will be amongst those hit by the squeeze on Ireland’s largest indigenous industry, one that accounts for 1 in 19 jobs.

Will Irish eyes keep smiling?
Tourism is, and always will be, a priority economic sector for the Emerald Isle. Ireland has become a beacon of excellence in showcasing its country and the endearing character of its people as an enviable asset for tourism. Rain or shine, the world loves to see how Irish eyes keep smiling. But with this move, no doubt there will be tears. The tears of the 32 counties, the majority of which rely on tourism activity to keep their economic ecosystems buoyant.

In June of this year, Tourism Ireland outlined its commitment to sustaining tourism growth for the holistic betterment, stating the below, on realization of +7.6 percent growth year-to-date from January to May 2018. Niall Gibbons, CEO of Tourism Ireland, said: “We are determined to ensure that tourism growth continues. Tourism Ireland’s campaigns are now in full swing around the world. Our aim is to grow overseas tourism revenue in 2018 to EUR6 billion, for the island of Ireland.”

These are not simply numbers on a page. They represent a robust increase in over a quarter of a million visitors — people traveling thousands of miles, investing their time, money, and travel dreams into finding a place that gives them not only a greater understanding and appreciation of the world, but a precious understanding and appreciation of their place in it.

Why raising VAT is a detrimental move
We know that governments need to raise taxes to pay for their fiscal demands, but applying a Band-Aid to stop the bleeding is not the solution, for two key reasons. First, additional funding to offset risks is unsustainable. Government budget pressures will not allow for ongoing funds for artificial industry buoyancy. Job losses are inevitable, putting additional pressure on other areas of government social services support.

Second, reputation may become irreparable to some travelers, perceiving a destination of being expensive and its government of extorting.

The problem is clear, as is the genuine risk of implosion of all of the remarkable success that Ireland has worked so hard to achieve over the past decade.

A call for cooperation
As an impassioned stakeholder with a direct emotional and financial investment in the future of Irish tourism, my fundamental belief is this: The best way to generate the additional funds is to support growth, not penalize. I therefore call upon the government to work with, not against, the tourism community — not just those in tier-one cities (Dublin, Cork, Galway), but to see the bigger picture.

We have an immense opportunity to stimulate economic activity in the tourism sector that delivers not just the tax revenues, but the jobs, earnings, sense of purpose, productivity and participation that connects all regions across Ireland, urban and rural. In essence, enough is enough, and it’s time instead to take additional action and unlock the infinite potential of tourism as a way of securing economic and social growth for everyone on the Emerald Isle.

We need to embed tourism as part of the solution, not part of the problem, for the long-term.

The 1.3 billion travelers in this world have a myriad of choices. I can only hope that the luck of the Irish will not run out.