PUBLIC ACCOUNTS COMMITTEE:THE DEPARTMENT of Finance was accused yesterday of undermining viable hotels by giving out €329 million in tax breaks for new developments over a four-year period.

Labour Party TD Róisín Shortall said the State was littered with “zombie” hotels because of capital reliefs provided between 2004 and 2007.

“Isn’t that a serious indictment of the policy pursued by your department,” Ms Shortall asked officials at the Dáil Public Accounts Committee.

Paul Ryan, principal officer at the Department of Finance, said €37 million was given out in 2004, rising to €67 million in 2005, €106.6 million in 2006 and €118 million in 2007.

Earlier this month economist Peter Bacon warned there were up to 15,000 more hotel rooms in the economy than needed.

About 27,000 new hotel bedrooms were built between 1999 and 2008, bringing the total hotel bedroom capacity of the sector to 60,000.

Ms Shortall asked what studies were carried out at the time the tax breaks were given to examine the potential impact on the industry. “Did alarm bells not ring?” she asked. Mr Ryan said the department would have assessed the impact of the tax breaks.

Committee chairman Bernard Allen said members wanted to know if department officials had examined the policy or bowed to political pressure and accepted it.

“What we want to establish is if officials just rolled over,” Mr Allen said.

The committee was reviewing the work of the Revenue Commissioners as part of the 2008 annual report of the Comptroller and Auditor General.

Josephine Feehily, Revenue chairman, said the amount of taxes collected has dropped by more than €14 billion since 2007.

The tax debt – the amount of tax owed to the State, which Ms Feehily described as a measure of the financial distress experienced by many businesses and individuals – increased in two years by 68 per cent from €1.1 billion to €1.86 billion.

“The scale of the tax challenge arising from this is very significant. We would need to increase the tax yield by over 43 per cent just to get back to where we were in 2007,” Ms Feehily said.

The Revenue chairman said the body had no desire to use its full enforcement powers against “innocent” victims of the recession or to drag them through the courts, urging businesses to engage with them “honestly, wholeheartedly and early”.

Ms Feehily said there were 7,228 non-resident tax returns filed in 2007, bringing in €43 million to the State.

She said resources were dropping because of the number of audit staff that have left, for reasons including retirement, but said she was not worried about it yet.

“That will impact on our audit capability this year,” Ms Feehily said. “We will be rebuilding it.” Meanwhile audits were carried out on 33 barristers in 2008 yielding €930,000 . The biggest tax write-off in the State last year totalled €3.46 million for a company with 613 employees.