The coming months won’t be easy

Hotel accommodation

Ingrid Hartges, managing director of DEHOGA, the Federal Association of the German Hotel and Catering Industry, on the reduction in Value Added Tax on hotel accommodation, equal opportunities and populist propaganda.

TW: On January 1, 2010 the German Growth Acceleration Act (Wachstumsbeschleunigungsgesetz) containing, among other provisions, a reduced seven percent rate of Value Added Tax on hotel accommodation came into force. What impacthas this controversial regulatory measure had so far?

Hartges: The VAT reductionis working. All over the country hoteliers and people running restaurants and guesthouses are taking on staff, creating apprenticeship positions, increasing wages, and investing the tax savings in new equipment, extensions and building alterations. Our DEHOGA survey, to which 4,000 businesses have already replied, indicates that one in three has reduced its prices by an average of 6.5 percent. Together these enterprises are creating more than 5,500 extrajobs, making investment totalling altogether EUR 682 million. There were and are good reasons for this tax amendment. The reduced VAT rate is not the exception in Europe, it is the rule. Meanwhile, 23 of 27 EU member states apply reduced rates for the hotel trade. At last the long overdue VAT cut creates a more judicious tax system, enhancing our hotels’ competitiveness in economically challenging times.

TW: Hotels and restaurants are struggling with the aftereffects of the gravest economic and financial crisis for decades and the severest sales slump for many years.

Hartges: We have indeed been through one of the toughest years ever. A real terms contraction of six percent marks the steepest decline in revenues that hotels and restaurants have had to contend with since 2003. Added to which, a long and snowy winter hit our industry very hard – except for the ski resorts of course. For this year we hope that we will at least be able to halt the downward trend. Bed night volumes are picking up again. The VAT reduction has unquestionably boosted confidence in the hospitality trade. But persistent public debate and the discussion over local ‘bed taxes’ on hotel accommodation are certainly not conducive to planning reliability for businesses or to faith in the future. As an industry particularly sensitive to economic developments, we also depend on consumer sentiment in the country. And as far as that is concerned, no one really knows at the moment what is going to happen with Germany, Europe and the euro. When times are uncertain many guests keep a tight grip on their purse strings. We’ve still got a stony path ahead of us.

TW: Governments labouring under the burden of massive debt in Europe are currently mulling tax increases. So far DEHOGA has maintained that the reduced seven percent VAT rate for overnight hotel stays merely restores equal opportunities, i.e. a level playing field relative to Germany’s European competitors, given that room nights in, say, French (5.5%), Spanish (8%), Portuguese (5%), Dutch (6%) and Swiss hotels (3.6%) are subject to far lighter taxation. Is the reduction in German VAT likely to survive the next round of government belttightening or do you see it being revoked?

Hartges: In its austerity conclave on budget cuts at the beginning of June the German government stood firm, refusing to be swayed by populist propaganda from the opposition parties and the media. The reduced VAT rate for the hotel trade remains in force. But that still doesn’t mean we can sound the all-clear. Negative media coverage continues, and the critics are very vociferous. With good and cogent arguments DEHOGA will continue to help keep the debate objective and dispel prejudices. Every business is called upon to play its part in this process. Only if we can make it clear that the VAT cut is creating jobs and that craftsmen and contractors are benefiting from our investment will we succeed in defending the tax cut. Because one thing is for sure: the commission set up to review the current value added tax system after the summer recess will also have the reduced rate for hotel accommodation on its agenda. I therefore call on all hoteliers who have not yet done so to take part in the DEHOGA value added tax survey and to give specific details on the uses to which they are putting the extra financial leeway they have gained. It is also vital to keep on highlighting to our guests and business partners, to politicians, and of course to local media representatives the positive stimuli that the value added tax reduction is generating.

TW: The EVVC, GCB and German National Tourist Board (DZT) meetings and event barometer for last year calculated a five percent drop in congress centre revenues, a downturn of ten percent for special event venues and a 15 percent slump for conference hotels. How does DEHOGA see the sales trend at meeting hotels for this year?

Hartges: Conference hotels bore the brunt of the crisis. Businesses slammed the brakes on expenditure and slashed their travel budgets, either cancelling events or holding them on a much smaller scale. We naturally felt the direct impact of this. 2010 has got off to a slightly better start, with hotels reporting more requests for conference quotations. Sustained recovery in this sector will depend chiefly on the economic situation as a whole. It’s difficult to make any reliable predictions. The coming months certainly won’t be easy. Our hopes rest with 2011.

TW: At congresses, conferences and events massive economies are being made on food and beverages. In general, are you seeing business guests economising on breakfast at hotels now that the difference in VAT rates for F & B and accommodation means breakfast has to be billed separately?

Hartges: It is correct that for two months the unresolved issue of breakfast for business travellers did cause trouble. Many guests opted for more economical offers off the hotel premises. But March 5 finally brought us certainty. With its business package regulation the Federal Finance Ministry ensured that business travellers in 2010 are not placed in a worse position than in 2009. We also know that in practice many companies take advantage of the possibility of applying payment in kind values. The hotels are flexible in this respect and accommodate their guests’ wishes.

TW: DEHOGA is critical of the twelve percentage point difference in value added tax between, say, pasta pockets served in a restaurant (19%) and tinned ravioli (7%) or fresh salad from a bistro (19%) and takeaway salads purchased from food retailers (7%). How likely is it that heavily indebted countries will reduce value added tax going forward?

Hartges: The arguments in favour of cutting value added tax in the catering trade have not decreased – on the contrary, as illustrated by the breakfast issue. DEHOGA has always campaigned for the introduction of a reduced VAT rate for the hospitality industry and will continue to do so with all the means at our disposal. We aren’t asking for anything dishonest, all we want is a level playing field for restaurants, bistros and cafŽs visˆ- vis bakers, butchers and the food retailing industry. No one can close their eyes any longer to the patent contradictions in the present system. Why industrial food production and food to go should enjoy preferential tax rates of seven percent while at the same time 19 percent is levied on meals prepared by hand in a restaurant or beer garden is beyond comprehension. Ultimately it is a question of food culture and the culture of enjoyment. We intend to make a constructive contribution to the VAT commission’s work. A million employees and more than 100,000 apprentices in 243,000 hospitality businesses, pillars of service in the domestic tourism industry who are firmly committed to operating in Germany, depend for their livelihood on fair local institutional framework conditions.

Interview: Dirk Mewis