The Irish Hotels Federation has called on the Minister for Finance, Mr McCreevy, to reduce the rate of VAT on hotels and guesthouses from 12.5 per cent to 10 per cent.

In a pre-Budget submission, the group also called for steps to ensure that energy and insurance costs were reduced to levels comparable with other EU member-states.

The federation said it would ensure that any reduction in the VAT rate would be passed on to consumers.

It said there was an "absolute need" to maintain the 2002 marketing budget for tourism and called on the Government to create a €20 million tourism recovery fund to fund extra marketing activities.

The Fine Gael spokesman on arts, sports and tourism, Mr Jimmy Deenihan, supported the call for a reduction in the VAT rate to 10 per cent. He said rates in France and Spain were significantly lower, at 5.5 per cent and 7 per cent respectively. He called for a report on tourism similar to the Culliton report on industry drafted in the early 1990s.