In his third major article for Barbados Free Press, Caribbean hospitality industry expert Robert MacLellan examines how some Caribbean governments are reacting to the economic crisis by increasing taxes on the barely-hanging-on hotel sector.
The bleached concrete skeletons of dead and stillborn hotels litter Caribbean coastlines like fish bones at Oistins. How much more carnage will it take for the Barbados Government to realise that the very foundation of our economy is being undermined by the government’s own taxation policies?
Destroying Caribbean hotels through taxation
by Robert MacLellan
Each of the Caribbean hotel investment conferences held in April and May this year included sessions to encourage closer cooperation between the public and private sector but, immediately prior to the Caribbean Tourism Summit in mid June, the governments of Jamaica and of Antigua & Barbuda announced significant new airport arrival taxes, with a new hotel occupancy tax also added in Jamaica. The Caribbean hotel industry’s greatest fear now is that other governments will follow.
These extra charges target the region’s highest spending visitors – the stay-over guests. While everyone understands the difficulties which island governments currently face in trying to balance their own budgets in times of world economic uncertainty and with increasing youthful populations, it is a fact that much of the region’s hotel industry is in deep financial crisis and has been for some considerable time. The region’s largest employer and biggest direct and indirect tax payer cannot be “the cow you take to market and milk it twice”.
Today, most lower and middle market Caribbean hotels, which have significant bank loans, are in default to some degree or other.
Energy and water costs on many islands are as high as US$40 per day per occupied room – with little actual utility cost differential per day per room between budget hotels charging US$80 a night and luxury resorts charging US$800 a night. Reservation systems, like Expedia, and tour operators continue to negotiate aggressively low hotel room rates, such that Smith Travel Research projects that average room rates in the Caribbean will not recover back to 2007 dollar levels until 2014. My own research suggests that lower end hotels will not even achieve that level of rate recovery. More tour operators are pressuring hotels for all inclusive rates, where meals become part of the tour operator’s “commissionable” package, but Caribbean hotel restaurants are already incurring operating losses in the face of escalating world food prices. Inevitably, hotel refurbishment and marketing budgets continue to be cut. Continue reading