* Govt to rule on VAT rate for hotels, restaurants next week
* Hospitality sector fears loss of thousands of jobs
* Domestic economy will come into focus if exports struggle
By Padraic Halpin
DELGANY, Ireland, Oct 10 Reducing sales tax for
Irish hotels, restaurants and other tourist businesses has paid
dividends, a fact the country's finance minister was reminded of
upon checking into his hotel room for a party conference last
The initiative created over 15,000 jobs in two years and
helped visitors to Ireland rise by over six percent this year,
the minister and other members of his Fine Gael party were told
in carefully-placed pamphlets by the Irish Hoteliers Federation.
But with a seventh round of austerity in five years on the
way in next week's budget, Michael Noonan is not sure he can
find the cash for an extension.
In the popular tourist county of Wicklow, restaurateurs say
he risks undermining one of the few economic bright spots.
"Things have definitely stabilised but food prices have gone
up astronomically, our electricity and gas bills are higher and
the price you can get per dish has come down so there's the
maths," said Emma Stone, owner of the Romany Stone restaurant in
"You've already hit our customers in their pay, I've been
hit as a director of the company and now you're going to hit the
VAT rate? It's perception and people will just stop spending."
Though not as a big a contributor to the economy as it is in
Spain or Greece, tourism is more employment-intensive than the
robust export sector. Hotels and restaurants employ almost as
many people as the nearly one in ten who work for foreign firms
like Google, Apple and Pfizer.
It has also been given a kickstart by a year-long government
campaign to lure visitors with Irish roots. 'The Gathering' has
seen North American tourists rise by a massive 16.5 percent.
Yet while Romany Stone opened its doors in May, Delgany
remains tarnished by empty shop fronts like so many other
one-street villages throughout Ireland, the wreckage left behind
by an economic crash that led to an EU/IMF bailout three years
Even as that bailout comes to an end, the domestic economy
remains fragile. Consumer sentiment is at a six-year high,
unemployment a 3-1/2-year low but consumer spending is set to
fall for the sixth successive year and the economy is in danger
The government is banking on a resumption of strong export
growth next year to return economic growth to the 2 percent seen
in 2011. Analysts say it will be the performance of trade
partners - not the country's restaurants and hotels - that will
determine how smooth a bailout exit Ireland makes.
"If someone waved a magic wand and made me finance minister
in the morning, I'm not sure how I'd deal with it myself because
it's an exceptionally tough call," said Eoin Fahey, chief
economist with Kleinwort Benson Investors.
"But right now I wouldn't say that I would cut my forecasts
because I and other forecasters have the VAT hike built in and
the number of jobs that have been created, while substantial,
are probably not enough to move the dial significantly."
However if euro zone recovery does not arrive as fast or as
solidly as Ireland needs, the domestic economy will have to pick
up the slack at a time when Ireland needs growth of between 2
and 3 percent to put its debt on a sustainable path.
The finance ministry on Tuesday slashed its 2013 growth
forecast to 0.2 percent from an estimate of 1.3 percent made six
months ago on shrinking domestic demand and exports and cut its
2014 forecast to 1.8 percent from 2.4 percent.
The IMF, which warned last week that a further slowdown
risked pushing Ireland's national debt to a high of 127 percent
of GDP in 2015 and not the 123 percent peak forecast for this
year, sees domestic demand rising by just 0.3 percent in 2014.
In such a precarious environment, the hospitality sector is
begging Noonan not to strip it of its momentum.
Responsible for over one in every four of the new jobs that
have helped bring unemployment down to almost 13 percent from
above 15, it promises another 5,000 posts will be added next
year if the VAT rate does not return to 13.5 percent.
Having breathed life into a sector that was forgotten about
during the boom years with a rare piece of stimulus, the canny
finance minister has an important balance to strike next week.
"The 9 percent VAT rate was a pump-priming exercise," Noonan
told parliament last week.
"Like all pump-priming exercises, one primes the pump, the
engine fires and when the engine is going, one does not need to
prime the pump again. We must measure whether the industry can
now go without special measures."
(Editing by Mike Peacock)