The price of hotel rooms and eating out are set for a major hike after the government announced that VAT rates in the hospitality sectors would increase to 13.5%.

Irish hoteliers have slammed Minister for Finance, Pascal Donohoe, who announced on Tuesday that VAT for the sector would rise from 9% to 13.5% in the 2019 Budget.

The Irish Hotels Federation (IHF) has branded the increase as ‘reckless’ and warns that Irish tourism will struggle to compete with cheaper European destinations.

Over 235,000 people are employed in the tourism sector currently and the government aims to raise over €450 million with this latest tax rise.

Michael Lennon, head of the IHF has pleaded with the finance minister to reconsider the measures until at least after the completion of Brexit.

Speaking on Tuesday, Mr Lennon said: “Ireland will now have a higher tourism VAT rate than 26 countries in Europe with which we compete.

“We are already a very high cost economy by international standards, so it is astonishing that the government is now imposing additional taxes on tourists and making our country less attractive as a destination.

“Have no doubt, this increase will hurt tourism across the country but businesses outside of Dublin will be hit the hardest.

“Regional businesses will bear the brunt, as about €300m of the €466m in additional taxes will be taken from the rural economy, which has been slower to recover from the economic crisis.”

The current VAT rate of 9% was introduced in 2011 as a temporary measure to increase productivity in the tourism and hospitality sectors and Mr Lennon claims that the industries should be rewarded for growth.

He said: “The government recognised the tourism industry’s ability to deliver on jobs across the country and we delivered, year after year, creating over 65,000 new jobs.  

“We achieved this by providing a quality product, high levels of service and competing internationally for business every day.

“Today the tourism industry supports over 235,000 jobs in every county and town, over 70% of which are outside Dublin, generating over €2 billion in taxes for the exchequer each year.

“It is deeply disappointing and frustrating that despite the strong response of the tourism industry to the 9% activation measure, its economic contribution and potential is no longer of importance to government policy.”

“We understand that government needs to raise taxes to pay for many social demands on the exchequer.

“However, we have argued that the best way to generate the additional funds needed for public services is to support growth in those business sectors, such as tourism, which are contributing.

“Time and again, tourism has shown itself to be one of the most effective ways to spread economic prosperity throughout the country and its successful recovery demonstrated its potential.

“Today’s short-term budget fix will have long-term implications for an important indigenous export industry and rural Ireland in particular.”

Hotels and restaurants are not the only businesses that will fall under the new tax rate, with catering, cinemas, theatres, museums, amusement parks, hairdressers, horse racing and greyhounds all subject to the VAT  rise.

Adrian Cummins, CEO of the Restaurants Association of Ireland described the government’s actions as ‘thoughtless’.

He said: “This was the incorrect decision by government and had little economic intelligence behind the decision to increase the VAT, as did the report by the department in July which didn’t take consideration of Brexit or revenue generated by overseas tourists to Ireland.

“VAT at 13.5% reduces Irish tourism’s competitiveness, resulting in less appeal to overseas visitors and, most worryingly, impacts the value for money offering which discourages people to spend their money in Ireland on Irish goods and services.

“With Brexit on the horizon and the as yet unknown implications it may have on our sector, this decision has put the Irish restaurant industry in jeopardy.

“This was an election budget paid for by the restaurant and tourism industry.”