TAOISEACH ENDA Kenny has defended the Government’s decision to impose a levy on pension funds to finance a plan to create 100,000 jobs over the next four years.
Among the key measures in the jobs stimulus plan are a reduction in VAT to 9 per cent on tourism-related activities, new infrastructural spending on roads and schools, a reduction in employers’ PRSI and the creation of almost 21,000 positions for training and internships.
The plan will be funded through a levy of 0.6 per cent on pension funds which will raise €470 million a year for four years, or €1.9 billion in total.
Defending the move last night, Minister for Finance Michael Noonan accused the pension industry of reacting in a “quasi-hysterical” manner to the levy, saying the Government was “pulling back a very small proportion” of the tax relief enjoyed by the industry over the years.
The challenge faced by the Government in promoting job creation is underlined by the latest quarterly report of the Economic and Social Research Institute which forecast that gross domestic product will grow by 2 per cent this year and gross national product 0.5 per cent.
The quarterly report out today, which is written by Joe Durkan and Cormac O’Sullivan, urges the Government to make a faster reduction than planned in the current budget deficit and advocates cuts in capital spending.
“The Metro North, for instance, shouldn’t happen,” Mr Durkan said.
As well as more rapid cuts in expenditure, the ESRI advocates higher taxes. “I think that taxes have to be raised as well. I think it’s inevitable and I think we should just do it,” said Dr Durkan.
Announcing the jobs initiative in the Dáil, Mr Noonan said it would help to rebuild confidence because it showed the Government had a vision of what it wanted to achieve, a strategy for getting there, and the energy and decisiveness needed to implement it.
Mr Noonan reaffirmed the Government’s commitment to the retention of the 12.5 per cent corporation tax rate. “It is central to our industrial policy and is an integral part our international brand,” he added.
The Minister identified the tourism sector as crucial for job creation and announced that the rate of VAT would be reduced from 13.5 per cent to 9 per cent on a range of goods and services to boost the industry. The lower rate will come into effect on July 1st and will apply until the end of 2013.
As well as applying to hotels and restaurants, the new rate will apply to cinemas, theatres, fairgrounds, amusement parks, sporting facilities, hairdressing and newspapers.
The commitment in the programme for government to reduce the 13.5 per cent VAT rate to 12 per cent has been abandoned to provide a significant boost to the tourism sector by bringing its rate down to 9 per cent.
“The purpose of this targeted VAT relief is to boost tourism and stimulate employment in the sector and I am confident that it will give the sector a much-needed shot in the arm,” said Mr Noonan, who added that to ensure the sector delivered the jobs the impact of the move would be reviewed before the end of 2012. In another boost to tourism, the air travel tax will be suspended.
Mr Noonan also announced that employers’ PRSI for workers earning below €356 a week will be halved while the cut in the minimum wage will be restored along with radical reform of the rules governing Sunday overtime.
An internship programme designed to provide 5,000 places will give those who take part €50 a week on top of their social welfare entitlements while a range of other schemes for people who want to get back to work or avail of training will bring the total number of places up to 20,900.
Fianna Fáil spokesman Willie O’Dea welcomed the measures on job creation but described the pension levy as “the biggest smash-and-grab raid since Nero got rid of Rome to build a pad for himself”.
JOBS PLAN: MAIN POINTS
A 0.6 per cent levy on pension funds to raise €470 million a year.
VAT on tourism-related goods and services will be cut to 9 per cent.
Air travel tax will be suspended.
Employers' PRSI for workers on below €356 a week will be halved.
The minimum wage to be restored to €8.65 per hour from July 1st.
Extra funds for work on regional roads and schools.
More training places, back to education initiatives and internship scheme will provide 20,900 places.