Like other speakers I welcome the Minister to this House. He comes from Killarney and everyone knows that Killarney is beauty's home and heaven's reflex. He was involved in tourism for many years and he has a special interest in the industry. The fact that he comes from Killarney which is the mecca of tourism is a very good thing.
The principal tourist area is the south-west region comprising Counties Cork and Kerry. The critical importance of tourist access for an island destination is highlighted both in the committee's report and the White Paper on Tourism Policy. If anything, the question of access is even more crucial for the south-west region. In recent years this region has lost the B & I Cork-Swansea car ferry service and Aer Lingus have reduced the number of direct flights to Cork from Britain and the continental cities, with more emphasis on routing through Dublin. Last year the then Lord Mayor of Cork, Deputy Liam Burke, put his head on the block and fought for a sum of money to have a ferry service in the south. The money was provided — £500,000 — but unfortunately when it was provided it was too late to get the ferry. If that money is still there I hope we will have the ferry service this year. I hope the Minister in his reply will comment on this as time is running out.
With regard to access by air, I welcome the proposal in the White Paper to facilitate the development by tourism interests of an expanded programme of charter activities to Cork and Shannon from the UK and continental Europe, consistent with the need to maintain viable scheduled air services. Above all, I ask the Minister to consider feeder services from Dublin and Shannon to Farranfore. This has already been requested for the west by my colleague, Senator Higgins, but I am interested in the south. I ask the Minister to comment on whether he can do anything in this regard. I know that if he can he will help. This is a very important commitment and the extent to which it is implemented will be taken as evidence of how serious we are with regard to the need to develop our tourism which is second in size to agriculture. There is no doubt that tourism is very valuable to this country. Because of the bad summer this year crops were affected. It is when agriculture becomes vulnerable that we know the value of tourism. You do not appreciate a fine day until you get a wet day.
I hope that the phrase in the White Paper "consistent with the need to maintain viable scheduled air services" will not be used as an excuse for obstructionist tactics by established vested interests. I cannot be as complimentary to Aer Lingus as my colleague, Senator Ferris. In the Oireachtas Joint Committee on Small Businesses of which I am proud to be a member Aer Lingus discussed this subject with us. Aer Lingus obstruct charters coming into this country. We had evidence of a charter which was to come from France bringing a lot of business being obstructed by Aer Lingus. Senator Ferris said that it is important and prestigious for a country to have its own airline and I could not agree more. However, in my opinion if we start the trans-Atlantic service the number of visitors on charters would be unparalleled in the history of tourism in this country.
I know the argument will be put forward that if you open up the airways to those people they will take the plums and leave the gooseberries; in other words, they will come here in summer but not in winter. What does that matter? I flew to the United States in 1981 on an Aer Lingus flight which started in Dublin but when we got to London we were put on an American airline. If they can do that themselves how can they blame anyone else for doing likewise? I want to see tourists coming into the country because tourism is the lifeblood of this country and should be encouraged in every way. If we took off that American service, which is losing in the region of £9 million a year, the loss would be around £14 million. It would be more than that except that Aer Lingus diversified by going into other businesses which were viable. If we concentrated on Europe we would get cheaper fares to the UK and more people would travel. Unfortunately, Aer Lingus seem to be more concerned with taking people out of this country than with bringing them in. You can go to an Aer Lingus office or agent and book for the Canaries for two weeks. You can get an apartment — other than in the Christmas season — and the flight for £250. If you want a holiday in Ireland, on arrival in Dublin, you rent a car and pay £200 before moving the car. Then you can drive down to Killarney, stop in Limerick and have a meal and fill the car with petrol, paying VAT on that, on the hire of the car on the meal in Limerick and on the hotel bill.
It is very hard to blame the hoteliers for high prices. They are forced to charge high prices. There are guesthouses, as mentioned by Senator Ferris, giving excellent value. I often wonder how the guesthouses can provide such an excellent service. The benefits are eaten up by the taxes and the travel costs. I would like to see Aer Lingus concentrating on Europe. There is plenty of scope in Europe. Let the Americans and the charters come in here. That is my own opinion. I am not expressing Government policy on that. VAT on meals at 23 per cent is nonsense in any country which is serious about promoting tourism. We have a situation here where there is no VAT on takeaway food. There is 23 per cent VAT on food consumed on premises, which is more job-intensive. There is a case for equal treatment all round at a low rate of VAT. When you suggest the reduction of VAT, the Minister for Finance is very glad to listen to you but having listened then he asks: "I would lose money on this VAT. Can you tell me where I am going to make up the money?" This is one occasion when I can tell the Minister that he will make up the money. If the VAT of 23 per cent is reduced to 10 per cent, and if the VAT which is zero on takeaway food at the moment is raised to 10 per cent and we then get a levelling-off of the VAT, there will be no loss to the Exchequer.
In relation to car hire, in its submission of October 1984 to the committee the Car Rental Council of Ireland produced a chart showing the cost of hiring a car from Hertz per day in each of nine European countries. Ireland at £85 per day was the most expensive. In Britain the cost was £63 per day. Of EC countries only Greece was more expensive. The decision to reduce VAT on car hire from 18 per cent to 10 per cent in the last budget is welcome and has resulted in an increase in car hire this year. However, even with this welcome VAT concession car hire is not competitive with other countries.
I would like to comment on car hire and the Northern Ireland situation. I would like to take this opportunity of congratulating the Government on the Anglo-Irish Agreement. If we get peace in our north-eastern counties which is a very good tourist area and if we get the people coming down here from the north that will benefit our tourism. At the moment we have something called back-tracking. Back-tracking means that people who come from the States and from other countries, if they hire cars in the North of Ireland, can hire those cars at roughly half the cost of car hire in the South of Ireland. I know what I am talking about on this subject because I am in the car hire business myself. The first question anybody is entitled to ask is "why are we twice as dear as the North of Ireland"? The answer is very simple — taxation. In this country we have VAT of 23 per cent, excise duty at 23 per cent under 12 horsepower, and 26 per cent over 12 horsepower. A car that costs £6,000 in the South costs £3,000 in the North. They have the benefit of buying the cars at half price.
Secondly, we have a horrible record of insurance claims in this country which, in fairness to the insurance companies, they have cognisance of. The result is that the car hire here is faced with about £900 premium per year on their cars whereas the premium in the North of Ireland is £150 to £200. There is no way we can compete with it. There are remedies for that and I will come to them later. With regard to coach tourism, the committee's report is unambiguous about how our tax system penalises coach tourism and what should be done about it. A combination of excise duty and VAT with no refunds on inputs, has left us with a Third World coach tourism sector.
Pages 40 and 41 of the White Paper acknowledges the problem with a vague commitment to do something about it. I hope this vague commitment leads to full-blooded action in time for the 1986 tourism season. I will quote from page 40 of the White Paper, which deals with car hire. In 1980 there were 36 rental companies in Ireland operating 8,000 cars. In 1985 there are 26 rental companies operating 6,000 cars. The report reads:
The availability of cars for hire is an important element of the tourism business since it brings visitors and consequently, income to areas which are not on the major coach tourism routes. In addition to the cars temporarily imported by tourists, approximately 15 per cent of overseas tourists avail of car hire while in Ireland. In the case of the North American market the figure is over 40 per cent. Because 90 per cent of the car hire sector's total turnover arises from overseas tourists, it is primarily an export-orientated industry. Regrettably the use of car hire by tourists has declined primarily because of the increasing high cost involved. Two major factors in that cost are taxation and insurance. The Government in an effort to enhance the international competitiveness of the sector reduced the rate of VAT on a range of tourist activities including car hire from 18 per cent to 10 per cent in the 1985 budget.
Car rental bears a variety of taxes and as a result the end price for car rental in Ireland is higher than the rates charged in competing European destinations. The burden of taxation and its effects and costs have been clearly demonstrated by various reports on tourism and the car rental sector in particular. The taxation burden and its key importance on this sector of the tourism industry, in a destination such as Ireland, has been acknowledged in the recently published White Paper policy document on tourism which I have just read.
While the two reductions in VAT from 23 per cent to 18 per cent, and more recently on 1 March 1985, to 10 per cent have been most welcome and have, undoubtedly, had a positive effect on demand, the most telling evidence available on the continual lack of competitiveness can be seen from the fact that in the first nine months of 1985 an increasing number of American visitors toured Ireland in cars rented in the United Kingdom. This is a reversal of the trend whereby the proportion hiring cars in the UK for use in Ireland had been on the decline. A proportion of American visitors to Ireland hiring cars in the UK in the year 1980-81 was 1 per cent to 3 per cent. In 1982, from January-September, the figure was 4 per cent, and the annual figure 5 per cent; in 1983, the figures were 9 per cent, and 8 per cent respectively. In 1984, from January-September, they were 4 per cent, and the annual figure was also 4 per cent. In 1985, the figure was 7 per cent from January-September, and the annual figures are not available. The source of these figures was the BFE Survey of Travellers. Up to the end of September 1985, an estimated 7 per cent of US visitors to Ireland had rented cars in the UK. This would represent 10,300 car rentals or 12.2 per cent of the total American car rentals touring Ireland.
The percentage of US visitors renting cars in Ireland from January to September 1984 was 48 per cent; in January-September, 1985, it was 50 per cent; in January to September 1984, there were 72,000 rentals, and in January-September 1985, 74,000. The percentage of US visitors to Ireland renting cars from the UK was 4 per cent in 1984, and in January-September 1985, it was 7 per cent, which represented 6,000 rentals in 1984 and 10,300 in 1985. These are Bord Fáilte estimates. Hence, while the total US market for car rentals was buoyant, a larger share of Americans rented cars in the UK with the resultant loss of revenue to the car rental sector, and a loss to the Irish Exchequer in VAT, excise duty on cars, parts and fuel, and indirectly, a loss of revenue for airlines and accommodation providers due to shorter length of stay in Ireland.
Since the performance of the US visitor market to Ireland is crucial to the survival of the car rental sector — US market accounts for 55 per cent of total car rentals — concern must be expressed about the prospects for 1986. Given a decline in the value of the US dollar the buoyancy of the market for travel to Europe and Ireland experienced over the past three seasons is unlikely to be present. These conditions coupled with the growing trend of increasing US multidestination traffic to Ireland would suggest that the uncompetitive Irish car rental product would again lose an increasing share of potential car rentals to the UK.
I have already outlined a major contributory cost to the current high rates of car rental. We continue on to the estimated gain to the Exchequer of direct earnings due to substitution for 10,000 car rentals in the UK as follows: 10,000 car rentals multiplied by £200 per one week rental represents £2 million; 10,000 car rentals require 800 extra cars. VAT at 23 per cent would come to £1,472 million. Road tax on 800 cars, £80,000. Excise duty on increased petrol sales would come to £208,000. The total would be £1,960 million. Hence without other considerations such as increased income and corporation tax, and VAT and excise earnings on increased sales in Ireland to visitors staying for a longer period of time, approximately £2 million could be generated for the Exchequer by reducing the "leakage" to the UK rental cars.
The report of the Joint Committee, which I am proud to be involved in has a chapter headed "Irish Holidays and Transport Services" It reads:
Just over one-third of all holiday-makers to Ireland pre-purchases an inclusive or "package" holiday arrangement offered by a tour operator in his own country.
While responsibility for all the necessary arrangements and for representing the tour operator in Ireland rests with an Irish handling agent, in many instances the involvement of the tour operator in Ireland has been as a result of the marketing activity of an Irish handling agent. Hence, this sector fulfils an essential marketing role from "creating" the package holiday and promoting it overseas, negotiating between producer and tour operator, to exercising quality control and ensuring customer satisfaction.
Given the situation that the Irish tourism product consists of small units and that for many foreign tour operators Ireland is very often a secondary destination, generating a relatively small share of their business, the handling agent represents an effective and economically efficient channel of distribution for Irish tourism. The potential for growth and development of new markets has not been fully exploited due to low marketing investment in this channel.
I would like the Government to consider having a Minister for Tourism, whom we have already but who has much more to do as well, only so that more time would be made available to make the load lighter on him and get better results for the tourist trade.
The report further reads:
Furthermore, foreign based and owned tour operators do not necessarily have a long term commitment to Ireland and with a very small base of Irish companies operating overseas, Irish tourism is in a potentially vulnerable situation.
The problems facing Irish handling agents include:
—low margins resulting in low level of investment
—low asset base against which to raise finance
—high overseas marketing development costs.
Currently, there are 20 members of the professional body for the sector, the Irish Handling Association, plus two semi-State operators CIE and SFADCo (Castle Tours). Employment is estimated at 200 full time year-round jobs with a considerable additional seasonal content.
Recommendation
Recognising the need for a more commercial approach to expanding existing and developing new markets the activity of Bord Fáilte should be complemented by handling agents. This can be achieved by means of a CTT-type of programme to encourage greater overseas marketing such as funding support for placement of sales personnel overseas; training grants; encouragement of co-operative ventures; and sharing risk cost of test-marketing programmes. There should be a cost benefit analysis of the return to Irish tourism from specific incentives to foreign tour operators based on the number of persons and extra spending power they would generate if given inducements to promote Ireland.
Coaches
(i) Background
Coach and bus transportation is provided by CIE and private operators. Business for this sector can be divided into four categories:
—provision of scheduled public transport service through the stage carriage licence;
—express coach services between points within Ireland and to points outside the country;
—provision of coaches for tourists, including day tours, extended coach tours of Ireland, and transfers.
—domestic private hire and contract work (including school bus services).
CIE have a virtual monopoly of stage carriage and express services within the country. The private sector control the larger share of coaches for tourism, domestic private hire and contracts.
During the past 10 years the share of the overall market held by the private coach operators has grown dramatically. Today there are over 4,000 public service licences issued to vehicles from minibus size upwards.
The number employed full-time in the private coach business is 6,000 with a further 4,000 part-time employees.
Since 1933, the bus-coach industry has been controlled by Acts of the Oireachtas, designed mainly to protect the railways. No new scheduled passenger licences have been issued since the 1930s. All private coaches operating are restricted to private hire only.
The growth in the size of the private coach market took place in spite of the following:—
(a) lack of protection from a licensing system such as the Road Haulage industry has;
(b) Competition from a heavy subsidised state company (CIE).
With regard to CIE the Committee notes with concern the condition of the CIE fleet in rural Ireland. Buses can be dirty and exhaust discharges seem excessive.
We talk about pollution and smoking, but one bus would be the equivalent of about one million cigarettes in some places I have been.
The report continues:
Entry to the private coach business is open to anyone who obtains a Road Passenger Certificate from the Department of Communications. Certificates are issued to applicants who fulfil the following three conditions:
(1) Be professionally competent.
(2) Be of good repute.
(3) Be of good financial standing.
The growth of the private coach business was helped by the Department of Education Free Transport scheme. Approximately 40 per cent of Irish school children travel to and from school on privately owned coaches. In some thinly populated areas, they operate exclusively the school transport scheme while CIE operate mainly in the population areas. Due to this anomaly, 60 per cent of the vehicles hired by the Department of Education for the "Free Transport Scheme" are supplied by the private transport operators.
The competition between CIE and the private coach operators is mainly confined to 2 areas:—
(a) Transportation of passengers to and from Dublin especially at weekends.
(b) Tours of Ireland — the private coaches now compete with CIE and overseas based operators, for a share of this market. The 14 private coach tourism operators registered with Bord Fáilte have a total of 180 coaches — CIE have 31 tour coaches.
(ii) Tourism Aspects
A characteristic of the sector in recent years in relation to the Tourism traffic has been the decline in both share and absolute level of demand which is being serviced by Irish companies. British coach equipment is being used to a greater extent each year in meeting the needs of this growth market. Due to significant capital and operating cost differences the Irish supplier is uncompetitive on price and quality of equipment when compared with his British counterpart. The longer term implications of this trend are serious, in terms of foreign revenue earnings, employment and the extent to which non-Irish companies will control the market. A consequence of the shift to UK coaching equipment is the fact that in many instances visitors to Ireland do not have the benefit of an Irish guide on their tour.
Demand for tourism coach hire will increase. This increased demand should be met by Irish rather than overseas operators, but as long as the tax structure in this area remains as at present, there is no prospect of Irish operators becoming competitive.
The Committee is satisfied from oral evidence from the Coach Tourism Council of Ireland that a system of registration of the 211 coaches or so used for tourist purposes only can be devised in co-operation with the National Tourism Authority and the Revenue Commissioners to facilitate taxation measures which the Committee recommends with a view to making Irish coach tourism competitive.
(iii) Effect of Taxes on Competitiveness
Foreign based coaches have a much higher standard of comfort than Irish based coaches. At least 90 per cent of the Irish coach fleet is over 10 years old as Irish operators usually import secondhand coaches from the UK. This is due to high excise duty and VAT.
There is a 6.5% excise duty on the new landed retail price of coaches and 23% VAT on the purchase price of the coach inclusive of excise duty. Coaches carry no excise duty in the U.K. Diesel fuel here costs 15% more than in the U.K. and vehicle taxes are higher. Capital allowances for coaches in Ireland are 20% per annum, in the UK 75% for the first year.
The position of VAT is particularly difficult. Passenger transport is exempt from VAT. There is therefore no refund of VAT on any inputs into the coach transport business, including the purchase of coaches, fuel and spare parts. VAT on a new coach is 23%. Transport is zero rated in the UK. The UK operator pays 15% VAT for his inputs and can reclaim it in full.
In this country the fact that the coaches are not registered for VAT means that they cannot claim back the VAT.
The report continues:
The principal consequence of this situation has to be a lack of competitiveness on the part of Irish coach operators in a growing international market.
The Commission on Taxation recommends in its Third Report that passenger transport be made subject to VAT. Commenting, mainly within the context of CIE, the Commission states that "the present exemption does not free passenger services from VAT. As the operator of an exempt service CIE is unable to reclaim the input tax on goods and services purchased for both road and rail passenger services. At present, input taxes incurred in day-to-day operation of passenger road and rail services amount to £7-£8 million per annum." This is the equivalent to a VAT rate of approximately 5% on receipts.
The Committee is of the view that the rating for VAT of passenger transport at the present low rate of 10% would not have an appreciable effect on fares or hire charges and supports the Commission's recommendation that VAT be applied to passenger transport services in respect of journeys within the State.
Recommendations
(i) VAT: The Committee recommends that VAT be charged on all passenger transport within the State at the low rate of 10%—thus allowing operators to reclaim VAT on all equipment, parts, and fuel. For public transport, receipts can be offset by an increase in the State subvention to CIE.
(ii) Coach Tourism: A system of registration for Tourist Coaches should be introduced in co-operation with the National Tourism Authority and the Revenue Commissioners.
The following facilities would apply in respect of registered coaches.
(a) A scheme of deferred payment of excise duty on new tourist coaches whereby no excise duty would be paid until the coach ceases to operate for tourist purposes,
(b) Capital allowance of 50 per cent per annum compared with 20 per cent at present.
I have dealt with car hire fairly extensively. The only other thing I would like to say about car hire is that in other countries the excise duty that we are paying which represents a large amount of money is 23 per cent under 12 h.p. and 26 per cent over 12 h.p.
These vehicles are bought and changed every year in 70 per cent of cases. If the excise duty was deferred until the resale of the car it would mean a saving of about £2,000 on an £8,000 car. In respect of every three cars the saving would provide the operator with one more car. The Exchequer would not lose anything in the long term but would in the short term. When the vehicle is disposed of the excise duty and VAT would be paid. The VAT does not present a problem in itself for the car hire industry; they can reclaim the VAT. If they could get a deferment of the excise duty that would go a long way in helping the industry.
Senator Cassidy had a lot to say about drink. He could not see any excuse for the extension of licences and suggested that drink was creating a great problem. Everybody knows that drink does not create any problem, it is the abuse of drink. In the near future restaurants especially bona fide restaurants who give a full meal, will be in a position to apply for a licence. If that increases the number of licences and if the criterion is that the premises has to pass Bord Fáilte I would be in favour of that. It is a shocking state of affairs the way the law can be circumvented. A man may drink up to closing time at 11.30 or whatever time it may be.