I thank the Chairman and the members of the Joint Committee on Jobs, Enterprise and Innovation, for the invitation to attend today's meeting. I am pleased to have the opportunity to discuss with the committee the importance of the retention of the 9% VAT rate in creating and maintaining jobs in the tourism and restaurant sectors. Following the presentation, which I will keep brief, we are happy to take questions. We made a formal pre-budget submission to the Department of Finance last week. We have a greater sense of clarity on the emerging issues and priorities for business in advance of budget 2014.
To provide some context, it will be useful for me to set out what the Restaurants Association of Ireland is picking up from the business community and our 1,000 members on the performance of the economy over the first half of the year and the issues arising as a result. Restaurants have to deal with, on average, 25 bodies and agencies in the day-to-day running of their businesses. It is an industry that has not been given a helping hand by local authorities and our SMEs contribute a massive 28% to the total income of local authorities. Restaurants can be seen as engine rooms of local economies in small towns and villages around Ireland.
Irish tourism suffered a major setback with the onset of the global recession in 2008. In the case of Ireland, the severity of the decline in demand for what we have to offer was all the more marked due to an already significant loss of competitiveness during the Celtic tiger boom years. Between 2008 and 2010, overseas tourism to Ireland slumped by over 20% in volume and value, equating to a loss of 1.8 million visitors and over €1 billion in revenue each year. As a consequence, 50,000 jobs were lost in the tourism sector. We have been fighting to regain those jobs lost in the hospitality sector in the past three years.
A reduction in the VAT rate from 13.5% to 9% was a key measure introduced to accelerate recovery in tourism through the Government's jobs initiative of May 2011. The Minister for Finance recognised that, "much economic activity within the tourism industry is highly intensive in its use of labour, particularly true of hotels and restaurants, recreation and entertainment". The Minister further stated that, "tourism can make a very substantial contribution to our economic recovery and to the creation of employment in all parts of our country". We are asking the Minister to recall these facts when considering budget 2014.
The reduction in the VAT rate provided a much-needed boost to help restore competitiveness and a return to growth in demand, as predicted by the Minister. The sharp decline was arrested in 2011, with an increase in overseas visitors for the first time in four years. This modest recovery was maintained in 2012 and figures are already showing signs of improvement, thanks to The Gathering. More encouragingly, results for the early part of this year suggest that revenue growth is outpacing volume growth - a major turnaround, given the economic and trading conditions in Ireland's main source tourism markets.
The Restaurants Association of Ireland welcomed the Government's jobs initiative in 2011 with open arms. It is evident that the changes to the VAT and PRSI rate regimes complemented each other in having a favourable impact on both prices and employment. In the hospitality sector in the past 18 months we have created 9,000 jobs at a time when job losses are dominant in other industries. Tourism has seen the largest growth in employment in the last number of years, coming second only to agriculture. However, it is also clear that the recovery is fragile and sustainable growth is not yet assured. The restaurant industry is starting to see a three-tier recovery across the country. There is now a three-speed economy. In Dublin city centre in the vicinity of Dáil Éireann, restaurants are doing well, paying their bills and we are even beginning to see growth and new openings. Unfortunately a different picture is painted around the country. Urban areas around Ireland are also busy, but only on Thursday, Friday and Saturday nights. Further into the country we see restaurants and cafes on life support. The reduction in the VAT rate to 9% has been a lifeline for them with rising costs facing SMEs such as the price of food, excise duty increases, rates, regulatory burdens. If the VAT rate is increased it will tip these businesses over the edge in every corner of the country. For these reasons it is imperative that the VAT and PRSI sections of the jobs initiative are retained.
Even before allowing for the stimulus effects of the 9% VAT rate on tourist spending and employment, it looks like the budgetary cost of the measure as it applies to tourism-related products and services has been approximately €90 million. I have provided a copy of the Deloitte report to members. The Irish tourism industry confederation and Fáilte Ireland reports in August of this year are based on CSO figures which confirm the figure of €90 million. This contrasts sharply with the €350 million estimate published at the time the jobs initiative package was first announced in 2011. When the resultant boost to employment is accounted for, the cost to the Exchequer is further reduced and may in fact become a net gain.
Common sense, international experience and anecdotal evidence, including a recently published Department of Finance paper, strongly support the argument that the VAT cut has been passed on to consumers. Our sector has fully complied with the measure and passed on the savings to the consumer. This has happened at the same time as visitors' perceptions of value-for-money in Ireland have improved substantially and despite the fact that key input costs have been steadily rising.
We are a labour-intensive industry with the ability to employ people quickly. We are encouraged by sentiments expressed by politicians the length and breadth of the country who want to continue to see jobs being created in their local towns and cities. Local authorities in 12 counties have passed motions and a further 14 are due to ratify motions in the next two weeks supporting the retention of the VAT rate at 9%. We have received great support from restaurateurs who realise that the increase of the VAT rate would mean job losses, price increases and closure for many. We are asking the Minister to retain the 9% VAT rate so we can all work as a collective to create even more jobs and employment opportunities than those that have already been created since July 2011.
If the current rate is retained post-2014, we will create another 5,000 jobs in the next 18 months.
Following on from the increase in excise duty of 41% on wine in budget 2013, the association is arguing that any increase in excise duty should be levied towards below-cost selling of alcohol in off-licences and supermarkets. This would have a positive impact on excessive unregulated home drinking, as well as encouraging sensible drinking in regulated environments. We must be able to compete with our European counterparts where there are no such extreme rates of excise duty.
While the 9% VAT rate helped to create 9,000 jobs in the tourism and restaurant industry, there remains an issue for the Government to address in terms of the serious shortage of chefs throughout the country. This has reached a crisis point such that it is threatening the recovery of the tourism industry. Serious efforts in the area of job creation must be made. The Restaurants Association of Ireland is calling for investment in training to be offset against employer's PRSI. We are further proposing that 1,000 workplace apprenticeships be provided in the restaurant sector, with participants accessing a training allowance equal to that given to FÁS apprentices. The scheme should be weighted towards professional cookery, craft and culinary arts, providing participants with a skills set which guarantees them employment on completion.
While we were granted funding to set up a professional cookery course that will take 100 long-term unemployed persons off the live register and train them in an intensive work placement programme, greater investment is needed. Job positions are available, but the necessary skilled workers are not. There is a lack of college places to serve the industry and, moreover, the cost of training a chef is substantially higher in an institute of technology than is the case under a private programme such as we are operating. A number of Fáilte Ireland courses were cut four years ago when the recession took hold. As it takes four years to train a chef, it is now that we are facing a huge crisis and bearing the brunt of the cuts. Unfortunately, there are fully fitted State-owned training centres lying idle and decommissioned throughout the country. The association needs assistance to get these training centres up and running in order that people can be trained for the employment market.
The Restaurants Association of Ireland is proposing that in order to capitalise on The Gathering, 2014 should be identified as the year of food tourism. This would involve including tourism and hospitality studies as part of the second level curriculum, thus reinforcing their importance to the economy and involving civil society in the economic recovery. After all, tourism is the second largest indigenous contributor to the economy. This is not the time to cut the allocation of funds to overseas marketing.
In this context, the Minister's intended review of tourism policy is welcome. It should acknowledge, as policy does, that the contribution of the industry extends well beyond its direct effects on employment and economic activity. Increasing the 9% VAT rate, one of the most tourism-friendly initiatives taken by the Government in recent years, would send a mixed signal to the hospitality industry. We must build confidence in the sector in order that businesses employ more staff and consumers spend more money. There must be confidence that we are all working towards the same goal of a brighter future. Maintaining the VAT rate at 9% will ensure we can achieve this. Budget 2014 which is exactly one month away must be pro-jobs, pro-business, pro-economy and pro-Ireland.