Minister of Tourism Yariv Levin believes that the hotel industry should be an important engine of the Israeli economy, and is determined to make it so by lowering room rates.
But Levin has no power to bring prices down by fiat. So he is working at his goal indirectly, by bringing hotel operating costs down through regulatory changes, while at the same time advancing a big building program to increase the supply of rooms.
“There’s too much regulation in Israel in general, and that includes the hotel industry,” Levin told Globes in an interview. “We eliminated the requirement for a fitness instructor in a hotel exercise room. We granted flexibility in overtime for employees, we revised the regulations governing night work, we’re trying to extend hotels’ business licenses to a five-year period, we changed security arrangements, and we eliminated the requirement for a pool operator. These measures will reduce costs, and should be reflected in the price. Due to relatively high wages, hotels in Israel can’t be as cheap as those in Egypt, but reducing regulation can help.”
Currently, he is busy cutting taxes on hotel overnights and package tours in Israel.
But the linchpin of his plan is more hotels. “The supply will lower the price,” he says, in what has become his official motto.
Together with Minister of Finance Moshe Kahlon, Levin recently presented an overall plan that he says will cut hotel prices by 20 percent. Under the plan, passed on its first Knesset reading in February, 15,000 hotel rooms will be built in the next five years. Developers will be encouraged by shortening construction procedures.
“The reform recognizes tourism as national infrastructure. Such a measure will enable the foreign hotel chains to establish a significant presence here,” he says.
“Tourism in Israel should be, and can be, a key economic anchor,” he says. “Every million tourists bring in NIS 3.5 billion, and create 40,000 jobs. Even though this is well known, tourism in Israel has not been given weight in national priorities — not in the budget and not in attention devoted to the subject, and this is going to change. We’re starting from a fairly low beginning of 2.8 million tourists a year, and as far as I’m concerned, we’re at a turning point.
Since taking over as Minister, the tourism budget has been raised from NIS 600 million in 2015 to NIS 800 million in 2016. The money goes into marketing, construction and infrasructure.
The hoteleliers sound less than euphoric about industry prospects, though.
According to the Hotel Association, “Profitability in the market is very low. The main barrier to the entry of competitors and the reason for high prices and low profit margins is excess regulation that does not exist in other OECD countries, and which accounts for a quarter of the consumer price. Given the operating costs and crazy regulation, new hotels are also incapable of offering a lower and unrealistic price. Flooding the market with low-cost hotels will therefore not solve the problem of prices. Furthermore, in a crisis, the hotels are the first to go bankrupt.”
Another complaint is lack of a differential municipal property tax according to occupancy, as is the prevailing practice around the world, which they cited as an obstacle to lowering prices.
Levin sympathizes, but says it’s not his decision alone.
“It’s logical that when there is high occupancy, the local authority should get more, and vice-versa. We need approval from the Ministry of the Interior for such a measure, and we’re promoting it. I proposed a pilot [program] in Yerushalayim to the Hotel Association in cooperation with Mayor Nir Barkat, with an attempt to adjust municipal property tax to occupancy. The Hotel Association wanted to stop it. I’m willing to renew the effort to run a pilot, but I won’t force it on anyone.”
The Hotel Association said in response, “Our request for a minimum and maximum municipal property tax was turned down, so the pilot did not go ahead.”