The Government is to reduce the VAT rate from 13.5% to 9% on a range of tourism related goods and services as part of the jobs initiative announced by Finance Minister Michael Noonan in the Dáil today.
The package of measures also includes the halving of employers' PRSI for low paid workers earning below €356 a week. This measure will affect 600,000 workers.
The Minister described the measures as the first step to improve Ireland's economic competitiveness and said it was about encouraging employment.
He said an independent fiscal advisory council would be established by the end of the summer and would represent a new approach to the management of the public finances.
He also said Ireland's corporate tax rate of 12.5% is 'here to stay'.
The Minister also said that the Government is to reduce the VAT rate from 13.5% to 9% on a range of tourism related goods and services as part of the jobs initiative.
He said that the sector could provide a very substantial benefit to the economy and help to increase jobs. He said that the new VAT will give the sector a 'much needed shot in the arm.'
The VAT reduction will be effective from 1 July 2011 until the end of 2013. The measure will cost the Exchequer €120m in 2011, €350m in 2012 and 2013, and €60m in 2014.
The VAT reduction will apply to activities such as restaurant and catering services, hotel and holiday accomodation, and entertainment services like cinemas and sporting facilities.
It will also apply to hairdressing and printed matter including newspapers and magazines, but not books.
The Government has also announced that the air travel tax brought in by the previous government is to be reduced to zero. But the tax is not being taken off the statute book and will be reinstated if airlines do not open new routes and boost passenger numbers.
Both the VAT reduction and travel tax measure will be reviewed at the end of 2012.
The Department of Finance is also liberalising the tax treatment for Research and Development activities - and reducing employers' PRSI on share options awarded to employees. Employees will still be liable to PRSI on share options.
Minister Noonan also announced that the Government is to impose a 0.6% levy on private pension funds as part of the measures it will use to fund its jobs initiative.
He pointed out that the pension funds industry has benefitted from massive tax relief in recent years.
The levy which is intended to raise €470m a year will operate for four years, and will be payable in two annual tranches. It will raise €1.88 billion over a four year period and the full year amount will be raised in 2011. The measure will not apply to non- residents or to funds already in windup before today.
Given that the bulk of pension fund assets are held offshore, the new levy is aimed at bringing money back into Ireland to fund job creation.
