Negative trends need to be taken care of and we need to change them quickly so that Croatian tourism will develop in the long term in line with the importance it has within the Croatian economy.
Nothing particularly alarming has occurred in terms of Croatian tourism this year, but the past season is a sign that the years of double-digit growth, which were not the result of our own work but the consequences of a series of circumstances over which we had no influence, are well and truly behind us.
As Marija Crnjak/Poslovni Dnevnik writes on the 18th of October, 2018, in regard to the coming years, things are likely to become far more challenging, as was stated by Veljko Ostojić in conversation with Poslovni Dnevnik. Ostojić is the director of the Croatian Tourism Association (HUT), the youngest professional association in Croatia which, since the beginning of this summer, has been heavily engaged in solving key industry problems, from tax policies and tourism, to the still burning ”lack of staff” issue.
What would, in your opinion, be the fundamental message we can take from this season, which was for some, one of the best seasons, and for others, has been downplayed?
The ratings can best be read from the numbers, but not just from the number of overnight stays and arrivals, but in terms of how full things were and income per accommodation unit, all of that should be taken into account.
The data for this season shows slight growth in terms of arrivals and overnight stays, but at the same time, reduced occupancy and a decline in income per unit. Let’s not forget that in 2018, we had almost seven percent more beds, primarily in family accommodation, which is, on the one hand, an opportunity, but also in terms of the market, that’s a challenge to fill.
It was expected and announced that it would be better, but in the end, every third bed in family accommodation was actually empty at the peak of the season. In the hotels and camps this season in Croatia, growth in facilities of higher categories has been recorded, while [tourist] facilities which haven’t been invested in for a long time have faced market problems.
The largest increase in accommodation capacities, arrivals and overnight stays has been recorded in family accommodation this year. The consequence of such a movement is the decrease in total income realised per unit of accommodation at the state level. Finally, I wouldn’t say that anything particularly alarming has occurred, but its a sure sign that this last season and the two-year growth was not the result of our work but a series of circumstances over which we had no influence, that’s now behind us and the years ahead of us will definitely be more challenging.
These negative trends need to be taken care of and we need to change them quickly so that Croatian tourism develops in the long run in line with the importance it holds within the Croatian economy – it makes up almost 20 percent of the country’s GDP, provides significant foreign currency inflows, and accounts for almost 10 percent of the total national employment.
Next year will arrive quickly, what will be the biggest challenge?
Market activities in preparation for next season have already begun. In addition, the government has announced a number of legal changes which will affect the tourism sector, and which will determine its global competitiveness in the long term. That’s why it’s extremely important that key decisions are prepared and brought in in cooperation with the sector, which unfortunately hasn’t really been the case. We’re still hoping that this will change in 2019.
Questions about timely workforce assurance and the most effective promotion are what we need to focus on in the coming months. The Croatian Tourism Association has prepared a proposal for the Tourism Employment Measures Program, which we’ve submitted to the government and the relevant ministries, and the application of that would, under these circumstances, enable the successful preparation of the coming [tourist] season in the aspect of the staff.
Will hotels have to drop their prices to remain competitive if these circumstances are maintained in the Mediterranean next year?
Our competition in the Mediterranean has returned to the scene with extremely low prices against which we can’t compete in Croatia, but we have to do everything to make sure that they [the competition] can’t compete with our quality.
For this reason, we need to increase the quality of our accommodation and offers in destinations. In this way, we’ll give the best price to quality ratio and thus attract guests. In order to make this happen, we need to change the best business frameworks.
The first and one of the most important steps is VAT reduction, and Croatia’s is the highest in the Mediterranean. From January the 1st, 2017, VAT on accommodation stood at 13 percent, while for food preparation services and catering services in tourist facilities, and the preparation and serving of beverages in these facilities increased from 13 percent to 25 percent.
Such a tax burden isn’t seen in any other single country that relies on tourism and it makes our tourist product seem less competitive from the start. It’s necessary to equalise the VAT rates on accommodation and food preparation services, and the provision of food and beverage preparation and service, which shouldn’t be higher than 10 percent, and in the next 3-4 years it should get lower still, to 8 percent. The lower VAT rate in tourism will have at least three effects: strengthening competitiveness, new investments, and the opening up of new jobs.
Accommodation prices for the next season have been defined and I believe that we’ve all learned the lessons from the way this year was.
How can we solve the staff shortage issue? Will salaries rise? Do hotels have a ”place” for that without any tax breaks?
Because of the uncompetitive conditions in business, employees in tourism in Croatia are being sentenced to lower salaries than those in Western countries, which results in the outflow of people.
We have to stop this because the shortage of quality workforce has become the biggest limitation for the development of our tourism. We already have a situation where year-on-year, hoteliers significantly increase salaries, and leading tourist companies announce an even bigger increase in wages as soon as VAT is reduced, as more room for bigger wage increases is needed.
According to the Report on Global Competitiveness in Travel and Tourism 2017 of the World Economic Forum, Croatia is at the very bottom in terms of the impact of taxation as a boost to employment and investment in tourism, we’re ranked at 132nd place, more specifically we’re 130th out of 136 countries worldwide. From that, it can be seen that it’s necessary to alter the tax policy. Raising wages and bringing them closer to the middle-term of the countries for which our staff are now leaving is the only quality and lasting solution, but, I repeat, it’s necessary to create [the right] conditions [for that].
On one hand, tourist companies advocate cutting the VAT rate to be more competitive, and on the other hand, we see that tourism companies have a high net profit. What are your arguments?
Tourist companies are part of the steady income in wages and investments, as can be seen in the data that the salaries in tourism sector amounted to 5.9 billion kuna in 2017, while the consolidated profit after tax amounted to 1.4 billion kuna. By the time 2015 rolled around, the tourism sector was in loss, and last year, consolidated net income after tax was 5.6 percent of total revenue. That’s everything but a high profit.
Over the past year, staff costs grew more quickly than the sector’s total revenue did: total sector revenue grew by 10.6 percent over the last year, and staff costs grew at a higher rate (14.8 percent), while profits grew at a lower rate than seven percent. From 2008 to 2012, investments in tourism in Croatia were at a 12 percent minus, and in the period from 2013 to 2016, when we had reduced VAT on tourism, investments rose by 14 percent.
From that, we can take it that tourist companies are constantly increasing their investments, but the key to that most significant of roles is the reduction of VAT. According to the calculations of respectable tourist consultants, just from the reduction of VAT alone, we can attract more than 2.5 billion euro in potential tourist investments by the year 2030.
These investments would largely change Croatia’s ”tourist image” and pave the way for a higher income in tourism, more government tax revenue, higher quality jobs, and more sustainable jobs.
Examples from Germany, Ireland, Spain, and Greece show that investments there have been directly related to VAT. On average, hotels in Germany invested around 90,000 euro annually in 2009, after 2010 saw VAT on accommodation reduced, investments rose to 119,000 euro, and in 2011 – to 243,000 euro. New investments have resulted in improvements in terms of the prices and the performance of hotels in Germany, compared with the years before the reduction in VAT rates.
In Ireland, following the decline in the VAT rate on tourist services in 2011, 79 percent of economic activity in that sector was recorded, thus directly increasing the fiscal effects.
The Austrian labour market is opening up [to Croatia], what will this mean for us?
This is an additional challenge that we’ll have to face, and that’s why we must react quickly. In the medium term, we aim to reduce the gap between existing salaries in the area of accommodation and food preparation and services in Croatia and in the countries to which Croats are leaving the most frequently, these include Austria, Germany, Slovenia, and Italy. In the long term, we need to provide improved working conditions that include a salary, accommodation, food, training, and other benefits.