The Government has said that it will pay 70% of extra inflation costs on public building projects, as part of measures to address inflation costs in construction.

Minister for Public Expenditure and Reform Michael McGrath said that the cost of transporting building materials are rising and there are also ongoing delays in delivering these materials.

He warned that some building work might never be finished if the State did not intervene to address soaring costs.

These include schools and roads projects where building materials are now more expensive compared to when the fixed price contracts were awarded to builders.

In the interests of safeguarding public building projects, a new framework will be drawn up to "share the financial burden" with the State to complete the works.

Under this scheme, the State will pay up to 70% of the additional costs caused by inflation.

The minister said that the cost of this intervention is likely to run to €30 million to €40m for the first three months of this year.

The Construction Industry Federation welcomed the measures, describing them as a "positive step", but expressed concern that they do not go far enough to address the high cost base.

Meanwhile, the Government has extended the lower VAT rate for the hospitality sector.

The 9% lower VAT rate, which was due to expire at the end of August, will now run until 28 February 2023.

The cost of maintaining the 9% rate is likely to be in the region of €250 million.

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Minister for Finance Paschal Donohoe said: "The 9% VAT rate was introduced in response to the challenges posed by Covid-19 to support the hospitality sector and today the Government has decided to extend the period when the 9% rate will apply for a further six months.

"This will provide further support to the tourism and hospitality sectors over the busy November/December period and into the early New Year."

The minister said 4,000 businesses with 114,000 employees in the sector will exit the wage subsidy scheme at the end of this month.

He said the lower VAT rate would help lay the foundations for a full economic recovery in the sector as these financial supports are wound down.

Minister for the Environment Eamon Ryan said the extension of the lower VAT rate is being timed in a way to give the hospitality industry the best chance of getting back on its feet.

Ibec welcomed the announcement saying it will be an important factor in protecting demand for services against economic uncertainty, as well as ensuring the long-term viability of the "experience" economy.

"Today's announcement will be a welcome relief for those companies operating in the Experience Economy who were brought to the brink as they complied with public health restrictions and are still today gradually emerging from Covid disruptions," said Ibec Director of Membership and Sectors, Sharon Higgins.

"The certainty that today’s announcement brings will enable these companies to plan a route back to viability over the coming years."

Adrian Cummins of the Restaurants Association of Ireland welcomed the move and said it would help settle businesses ahead of what will be a "bumpy tourist season".

However, he said the lower rate should be extended to the end of 2023 given that tourist numbers have not yet returned to pre-Covid levels.

Hotels and guesthouses also welcomed the announcement from Government that it is to extend the 9% VAT rate for the tourism and hospitality industry to the end of February 2023.

The Irish Hotels Federation said the measure will go a long way to helping the industry's recovery.

But given the challenges ahead, the IHF called on the Government to further extend this measure up to 2025 in order to maintain international competitiveness with other European destinations.

IHF President Denyse Campbell said that the 9% VAT rate is the right rate to support recovery in Irish tourism and hospitality and enable the sector to rebuild following an "exceptionally challenging" two years.

"Hoteliers and everyone across the tourism industry recognise the vital supports put in place by the Government during the pandemic. These played a crucial role in enabling businesses to survive, and we are now working to restore the livelihoods of the 270,000 people who worked in our industry prior to Covid," Ms Campbell said.

She said that extending the tourism VAT rate will aid the recovery under way in the tourism industry after a bruising two years during the pandemic.

"This is particularly the case as the sector faces into a gale of spiralling business costs, with IHF members reporting year-on-year increases of 88% in energy, 22% in water and 18% in food and beverage," she added.

The owner of Paris Texas bar and restaurant in Kilkenny also welcomed the extension.

Pat Crotty said: "We thought we were over our troubles when we were exiting Covid ... and we just found a different type of trouble".

Speaking on RTÉ's Today with Claire Byrne, he said the cost of meat has risen so steeply he is wondering if it is worth while to keep offering some items on the menu.

For example, he said, if the normal margin to fillet steak were to be applied, a customer would then need to be charged €67 for a nine-ounce steak.

Mr Crotty said he was holding back on increasing costs because customers cannot afford it.

"The extension of the 9% VAT will enable me to continue to do that," he said.

Mr Crotty said the pandemic really hurt those people who had careers in the hospitality sector because they could not wait for the sector to reopen and instead looked for work elsewhere.

"This means we have a huge cohort of younger people who need to learn the trade," he said.