With a 6.7 per cent decline in the on-trade up to the end of September this year – and likely further dramatic falls in October and November – Ireland’s pubs cannot sustain losses on this scale, with the sector approaching meltdown, DIGI has stated.
Low consumer confidence and a lack of spending in pubs, bars, restaurants, hotels and nightclubs is devastating the on-trade and thousands of jobs are being lost as a result, it added. While the wider drinks industry supports an estimated 62,000 jobs, down from almost 100,000 four years ago, the overwhelming majority of these are in licensed premises and further losses will undoubtedly occur in 2012.
DIGI wholeheartedly welcomed pro-consumer stimulus measures such as the December 2009 excise cut and the reduction in VAT for the hospitality sector earlier this year, but said that the impending two per cent VAT increase would increase the burden on consumers and impact negatively on the hospitality sector.
The Government must not implement any further measures that would damage the sector, said DIGI which called for a cut in excise duty to offset the VAT increase, stimulate demand and encourage spending.
DIGI Secretary and LVA Chief Executive Donall O’Keeffe commented, “Latest CSO figures show that:
- Bar sales declined 28 per cent from mid-2007 to mid-2011
- The on-trade has declined by 6.7 per cent this year to the end of September
“On top of this CSO data trade sources confirm that there have been further double-digit declines in October and November and the situation is deteriorating from an already disastrous situation for pubs, bars, restaurants, hotels and nightclubs.
“The year-on-year losses we have experienced since the start of the economic downturn are being aggravated by the fact that consumer confidence is at rock-bottom. In the current climate, that is entirely understandable. But for jobs and businesses in the hospitality sector it is a nightmare scenario.
“Consumers need incentives to go out, spend their money, generating tax revenue, sustaining jobs and supporting this important sector of the economy. The Government’s role in boosting confidence and facilitating consumer spending is absolutely critical.
“We are therefore extremely disappointed that the Government has announced it will increase VAT by two per cent in Budget 2012. This will inevitably lead to price increases and will act as a major disincentive to consumers to socialise and spend money in the hospitality sector. It will exacerbate the severe difficulties being experienced by the on-trade in particular.
“Any such price increase could also provoke a return to the cross-border purchasing of alcohol and other goods that had been addressed through the December 2009 excise reduction. This would mean further lost revenue to the State.
“Given that Ireland has very high alcohol taxation by EU standards the Government should now implement a 10 per cent reduction in excise based on the positive outcome of the last taxation cut two years ago and to mitigate the impact of the two per cent price increase.
“While the drinks industry overall continues to generate €2 billion in tax, over €1 billion in export revenue for the State and is a crucial part of our tourism offering, the majority of pubs simply cannot sustain current sales trends. DIGI is asking for Government support for the hospitality sector and will continue to work with them to build economic recovery.”
The VFI agreed that the proposed increase in VAT from 21 per cent to 23 per cent will have a “crippling effect”, devastating thousands of jobs and accelerating the closure of hundreds of pubs.
VFI Chief Executive Padraig Cribben stated, “The news of the proposed increase by Minister Noonan is devastating to say the least and only confirms to publicans that the outlook for next year is very bleak.
“Over 90 per cent of the pubs in Ireland are family businesses and the majority of these are already struggling to keep their doors open. The last thing they need is an increase in VAT.
“This proposed two per cent increase will have a crippling effect on our members. Only last Thursday they felt compelled to spend time away from their businesses, which they can ill afford to do, to walk on Dáil Éireann to vent their frustrations having just experienced the worst October in over two decades. The implementation of the new drink-driving legislation was the final straw for many.
“The route to recovery is to stimulate the domestic economy not further depress it. This will act as a further dampener on spending and will threaten jobs in the total retail sector. These job losses will result in lower PAYE returns, higher Social Welfare payments and, ironically, lower VAT revenues because of the reduced spending capability.
“The Minister reported his intention not to increase income tax in order to protect jobs. But the Minister needs to realise that this VAT increase will have a devastating effect on jobs in the pub industry.”