Pro-business policies to cost €500m

Analysis: Noonan retains 9 per cent VAT rate for hospitality industry for another year

Minister for Finance  Michael Noonan who today published a budget containing 25 pro-business and pro-jobs measures worth half a billion euro.  Photograph: Bryan O’Brien / THE IRISH TIMES

Minister for Finance Michael Noonan who today published a budget containing 25 pro-business and pro-jobs measures worth half a billion euro. Photograph: Bryan O’Brien / THE IRISH TIMES

Tue, Oct 15, 2013, 17:45

Minister for Finance Michael Noonan quipped at the weekend that people would be astounded at all the good things he would announce in today’s budget.

It has been known for some days that there would be one big item held back and not leaked to the media in the run up to this afternoon’s announcement.

And Noonan himself had heavily hinted it would concern jobs and the construction industry.

This afternoon he has announced what he described as 25 pro-business, pro-jobs measures, worth half a billion euro. The main component of that, however, is something that is already there, the 9 per cent VAT rate for the hospitality industry.

It was due to expire at the end of the year and he has sustained it into 2014, at a cost of almost €300 million.

So the other 24 measures comprise €200 million, a healthy chunk of change but not really the kind of transformation that is capable of blowing one away - as Charlie McCreevy did (disastrously as it turned out) with decentralisation a decade ago in late 2003.

Sure there are good things in there, including air travel being reduced to zero; a new home renovation at an overall cost of €62 million; and a few incentives to stimulate investment (mostly in the financial services industry) and provide jobs.

But it’s not all good things. There are lots of potential stings in the tail. An obvious one is the first major raid on both old reliables in a number of years.

There’s an extra 10 cent duty on a packet of cigarettes, an extra 10 cent on a pint and on spirits, as well as 50 cent on a bottle of wine.

He explained this by saying that the lower VAT rate for the hospitality interest would soften the blow, but not many will see it that way.

Another potential landmine is the decision to cap the tax relief available for medical insurance premiums to €1,000 per adult and €500 per child.

Noonan said this would only affect those with “gold-plated policies”. But the reality is that most policies these days cost well in excess of €1,000 and many ordinary policy holders will be hit.

As expected on Noonan’s side, the two big single items to raise revenue are the hike in DIRT tax on savings to 41 per cent (€105 million) as well as a €150 million levy on banks (lower than the €200 million reported in recent days).

Politically, the Government will highlight the jobs stimulus programme as a big win and will also point to no increases in income taxes or other regulars such as petrol and diesel.

However, there are items on the tax side that will be controversial and unpopular, especially in relation to medical insurance and price increases for alcohol and tobacco.

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