Economic boost will be modest, says Noonan

A CUT of 4.5 per cent in the VAT rate for tourism-related goods and services is one of the main planks in the Government’s initiative to stimulate job creation, announced by Minister for Finance Michael Noonan yesterday.

The Government will provide 20,000 training and internship places for the unemployed, and proposes the abolition of the air travel tax so long as airlines increase visitor numbers. It will reverse the €1 cut in the minimum wage from July 1st and halve employers’ PRSI payments for low-paid workers.

On capital projects, €30 million will be provided for school building projects and €60 million for work on regional and local roads.

Additional exchequer funding of €19 million will be made available for retrofitting of homes to make them more energy efficient.

One of the most controversial elements of the well-heralded plan is the imposition of a 0.6 per cent levy for four years on private pension funds to finance the projects, which the Government estimates will yield €470 million a year or €1.88 billion in total.

Stressing that the “direct stimulatory effect” of the package “will be modest”, the Minister told the Dáil that they were the first steps by the Government towards “improving the competitiveness of important sectors of the economy and enhancing the functioning of our labour market, the better to facilitate the return to work of those who are currently unemployed”.

Mr Noonan said “despite the tight constraints within which economic policy must now be pursued, it is still possible to make policy changes for the better”.

Defending the Government plan to impose the levy on private pension funds, Mr Noonan said it was for a “relatively short period and its purpose is to improve the environment by providing the means to encourage job creation in areas of our economy most likely to deliver that employment quickly”.

The Minister said the reduction in the VAT rate from 13.5 per cent to 9 per cent “will apply mainly to restaurant and catering services, to hotel and holiday accommodation and various entertainment services such as admissions to cinemas, theatres, museums, fair grounds, amusement parks and sporting facilities.

“In addition, hairdressing and printed matter such as brochures, maps, programmes and newspapers will also be charged at the new rate.”

The measure is expected to cost the State €120 million this year and €350 million in a full year. The reduced rate will be introduced on July 1st and lasts until the end of 2013.

Mr Noonan noted that tourism earnings dropped 30 per cent between 2007 and 2010. He said that “even by recovering the ground it has lost in recent years, tourism can make a very substantial contribution to our economic recovery and to the creation of employment in all parts of the country”.

Referring to the abolition of the air travel tax, Mr Noonan said it could possibly be implemented on July 1st, but he specified that “the commencement of this measure is subject to an agreement being reached with the airlines to bring in additional passenger numbers”.

If implemented in July it would cost the exchequer €15 million this year, €90 million in 2012 and €105 million thereafter.

Stressing the importance of tourism to the Irish economy, Mr Noonan placed particular emphasis on visitor numbers from Britain, which “is our most important overseas market”.

Mr Noonan also signalled that Minister for Justice Alan Shatter would announce visa reforms, where visitors from emerging markets with visas for the UK “will not require a separate visa to come to Ireland”, to benefit from visitors to the London Olympics next year.