Competitiveness under threat, tourism conference told

The pros and cons of the budget measures came under close scrutiny yesterday at the annual conference of the Malta Hotels and Restaurants Association, which claimed credit for convincing the finance minister to shelf a proposed increase in VAT on accommodation as from 2005.

The proposal was to raise VAT on this sector to eight per cent from the current five per cent, which will now stay in place until at least April 2006, MHRA president Winston Zahra said.

"Thanks to a report by the University of Nottingham, which showed that a one per cent increase in price would lead to a three per cent drop-off in demand, and to the strong representations at the pre-budget retreat in Gozo and the support of other constituted bodies, we managed to change the minister's view on this important subject," Mr Zahra said.

Although he welcomed the decision, he added it was unfortunate that similar representations to avoid an increase in VAT on the catering industry were not accepted.

Evaluating the tourism situation, Mr Zahra recalled comments he had made during the last quarterly presentation when he had stated that unless immediate action was taken Malta, would be heading for the worst winter in years.

"Even with a 3.5 per cent drop in numbers in September and a drop in excess of 10 per cent in October, the government was still trying to make everyone believe there was no problem.

"However, the reality is that we will probably end the year with a drop of three per cent in the number of visitors, on the back of a four per cent decline last year," Mr Zahra said.

He added that this drop in numbers was compounded further by a drop in average hotel room rates.

"The truth is that our competitiveness is under threat," Mr Zahra said.

Tourism Minister Francis Zammit Dimech gave some more optimistic figures, however. He told the conference that according to the National Office of Statistics, in the first nine months of this year the number of tourists reached 911,609 - an increase of 1.1 per cent over the same period last year.

Gross earnings amounted to Lm193.9 million, an increase of Lm9.9 million or 5.4 per cent over the same period last year.

Another positive factor was that the number of nights spent amounted to 9,023,089 - an increase of 9.2 per cent.

"The economies of our tourism core markets are picking up, even if when compared to the US and Japanese the growth is rather sluggish," Dr Zammit Dimech said.

"To sustain a growing tourism sector we should all strive to better our competitiveness as we are losing out to our competitors both in source markets and competing destinations... we should together - that is all the stakeholders in the tourism sector - strive to better our product especially in those areas perceived as weak by our visitors," he said.

The government, he added, was conscious of the importance of the tourism sector, so much so that it was providing Lm10 million over four years for embellishment projects.

Recurrent and capital expenditure in tourism and culture will be managed through an ad hoc account which will be credited with VAT receipts from hotels and restaurants as well as from revenues which Heritage Malta will collect from the various sites it manages.

In his speech, Mr Zahra said a great deal of work had to be done to regain competitiveness.

"As private industry we have to work together with the government, the various authorities and constituted bodies to ensure that we do what it takes to make the world class grade without further delay."

Mr Zahra said the Lm10 million fund should be a great help in improving the tourism infrastructure.

Proposed additional funding to local councils in tourism zones and the emphasis on training and standards were welcome too. But he expressed concern about the possible effects on demand due to the increase in the VAT rate on other tourism-related products.

The MHRA, he said, was also concerned with the inflationary effects of any increased wage demands as a result of the higher cost of living brought about by the VAT rate increase.

He complained that not enough had been done to address the ongoing issue of government expenditure and tax evasion.

The conference was held at the Suncrest Hotel, in Qawra.