Jim Power: Latest omens for tourism sector are concerning
Reduction See Passengers Travelling Limits A Next Airport In Airport Capacity At The Year Will Dublin To
It was an interesting week on the Irish economic and corporate front. As expected, another rate cut of 0.25 percentage points was delivered and the suggestion is that the European Central Bank (ECB) will continue to gradually ease, but it may be another three months before another cut is delivered.
Slow and gradual is likely to remain the mantra of the ECB.
Following the European Court of Justice ruling, the Irish Government is set to receive an Apple tax gift of just over €14bn over the coming months, although there is some uncertainty surrounding the possibility of some international claims on some of that money.
It was also revealed that Apple recently informed the Government of the international competition that is becoming more intense to entice multinational companies away from Ireland.
There is nothing too surprising about that, because the competition for mobile foreign direct investment is becoming more intense all over the globe. That is the pool in which Ireland is competing and we just need to make very sure that Ireland’s investment offering remains as competitive and appealing as possible.
In that context, using some of the fruitful Apple bounty to address non-tax issues of competitiveness, such as housing, physical infrastructure, education, water, and energy, would be money well spent and would enhance Ireland’s long-term growth potential.
All these issues are important in themselves, but the latest Fáilte Ireland Tourism Barometer probably did not get the attention it deserves. Tourism is of vital importance for employment and economic activity throughout the country, and along with agri-food and the SME sector in general, does provide some antidote to the foreign direct investment (FDI) concentration risk that Ireland is exposed to.
In other words, it is essential to do everything possible to grow the indigenous economy and provide some counterweight to the significant FDI component of the economy.
The latest omens for the tourism product are concerning. The Fáilte Ireland survey of tourism operators shows that 53% of businesses are reporting fewer customers than last summer, with just 24% reporting higher visitor numbers.
This softening is being primarily attributed to bad weather — what’s new there — the squeeze on disposable incomes due to the elevated cost of living, and the lack of accommodation.
Of particular significance in the context of the increasing number of restaurant closures and the debate about the 9% Vat rate for food service businesses is the fact that 68% of food and drink businesses reported fewer visitors than last year.
It is clear to me that the Vat rate for food service businesses should be reduced to 9%. However, other threats to tourism emanate from the short-term letting legislation going through the Dáil, which could effectively result in thousands of self-catering properties being removed from the tourism offering.
There is also the debacle over the 32m passenger cap at Dublin Airport, which is also of critical importance to Ireland’s tourism product. Over the coming year we are set to see airport capacity being reduced to remain within the cap.
The notion that a local authority should have so much control over a vital component of national infrastructure does not seem right. Equally bizarre is the notion that visitors to Ireland and Dublin should come through regional airports, as suggested by a Government junior minister.
We really do need to be careful about protecting the tourism sector, which has an extremely high value-added contribution to the domestic economy.
The other piece of good news this week, apart from the dire debate performance of former US president Donald Trump, is the ongoing decline in the annual inflation rate.
The headline rate of inflation decelerated to 1.7% in August, which is the first time since June 2021 that the annual rate has fallen below 2%. It is important to bear in mind that the decline in the pace of price increases should not distract from the fact that average consumer prices in August were 19.8% higher than March 2020, when the covid lockdown began.
Average food prices are 19.4% higher. These cost-of-living pressures are clearly having a significant impact on the consumer and customer-facing businesses.