MHRA reports on EU impact on tourism

Malta could lose as much as 19.5 per cent of its tourism earnings if it stays out of the European Union, according to the Malta Hotels and Restaurants Association, which based the figure on studies it has commissioned.

On the other hand, there could be a rise in revenue of between 1.9 per cent and 2.2 per cent if Malta became a member, the association said.

The association commissioned three experts, Gabriella Pace, Adrian Borg and Gordon Cordina, to study the impact on the sector of factors such as the introduction of the euro, VAT, and the UK airport tax.

Details were given during a one-day conference at the end of which MHRA president Winston Zahra declared that the association was officially pro-EU.

After combining the results of the three studies, it was found that non-membership would result in a potential loss of tourism revenues of up to 19.5 per cent.

There was, however, a "remote upside" of 0.6 per cent if Malta opted out of membership, risked having a zero rating on the sector, and provided that the EU did not use any discriminatory tactics.

With regards to VAT, the effect on revenues would range from a positive 4.9 per cent if Malta were to adopt a zero rating on tourism, in the case of not joining, and the EU did not adopt any discriminatory tactics. On the other side of the scale, there could be a 15.2 per cent drop in revenues if Malta retained its current VAT rates and the EU used discriminatory tactics.

The report concludes that if VAT remained unchanged and Malta chose to remain out of the EU, the losses would be dramatic.

If Malta joined the Union, then the effect on revenues would vary between a rise of 0.8 per cent to 1.1 per cent.

The VAT report says that the zero rating option was unlikely because of the macroeconomic situation, tax distortions, and international trade obligations.

In Malta, VAT on hotels is charged at five per cent while 13.5 per cent is charged on restaurants.

Current VAT rates in the EU were very far from being harmonised, with great disparities in different countries, Mr Cordina explained at the conference.

The report on the euro says that Malta has already lost 1.4 per cent of its competitiveness since the introduction of the currency due to the fact that competitors now have a lower exchange rate volatility and lower conversion costs.

The scenarios of keeping out of the euro zone are rather alarming. Non-membership, and assuming the UK will eventually join the euro zone, would result in a further drop of 2.9 per cent in revenues and a corresponding 4.7 per cent drop in employment figures, the report says.

This is compared to a rise of 2.6 per cent in revenues and a corresponding rise of 3.2 per cent in employment figures if Malta joins the Union.

Dr Pace said it had been established that a tourist's cash could previously lose up to two thirds of its value while travelling around Europe, simply through currency exchange. This has been ironed out with the introduction of the euro.

The report says that with membership, the Tour Operator Margin Scheme would be negative to the tune of 1.5 per cent losses in tourism revenues.

On the other hand, the UK airport tax would have a negative compounded effect of 1.4 per cent if Malta did not join the EU.

Mr Cordina said no major movement in food prices was expected following membership.

The implementation of new social policy regulations will be of substantial cost to employers within the industry, however MHRA does not believe that this is any longer dependent on EU accession.

Mr Zahra said the vast majority of visitors come from EU countries and they expected the same standards adopted in their own countries.

If Malta remained out of the Union it would have to maintain its standards with the respective associated cost, without being able to take advantage of the benefits that arise with membership, he said.

The MHRA, Mr Zahra stressed, strongly condemned the major political parties for treating the issue as yet another political football in an attempt to satisfy partisan aims.

MHRA represents 70 per cent of the hotel bed stock in Malta and it further represents 35 per cent of all registered restaurants in Malta.

Additionally, the association represents a collective local investment in excess of Lm450 million and a workforce of over 20,000 employees.

Mr Zahra said the MHRA will continue to lobby very strongly for a reduction in the VAT rates on restaurants down to five per cent, as it strongly believes that such a move will increase revenues substantially, create more job opportunities, and ultimately leave government revenues untouched due to the extra taxation generated from the increased economic activity within this price-sensitive sector.

He said there was no doubt that with EU membership the potential of increasing seat capacity to Malta would increase.

MHRA is also, however, very aware of the ongoing support that Air Malta gives to the local tourism industry and the fact that certain non-commercially viable routes are maintained for the good of the industry.

Air Malta would also gain from having much easier access to EU-based airports.

Mr Zahra said the only chance Malta had of sorting out its roads, waste management problems and heritage sites was to tap EU funds, while working to the deadlines imposed by the Union.

He said the MHRA had seriously reviewed all documents related to the EU, and had recently met opposition leader Alfred Sant to discuss the partnership option.

The MHRA council met last Friday to take a vote on whether EU accession would beneficial for the local tourism industry.

The entire council, a total of 14 members, voted unanimously in favour of EU accession.

Mr Zahra said a status quo could only exist if everyone stops moving forward and not if Malta alone stopped doing so.

"If we retain a status quo locally, and others, especially our competing destinations, change their tactics and positions then our status quo becomes nothing more than a slippery slide backwards."

Other speakers at yesterday's conference included Tourism Minister Michael Refalo, Malta's chief negotiator Richard Cachia Caruana, and Joaquim Cabrita Neto, president of the Confederation of Hotels, Restaurants and Cafes in Europe.