| 14.6°C Belfast

Ireland signals end of austerity


The top rate of income tax is set to be cut by 1% to 40%.

The top rate of income tax is set to be cut by 1% to 40%.

The top rate of income tax is set to be cut by 1% to 40%.

Ireland's Finance Minister has declared the end of austerity with the country's first tax-cut and spending-increase budget for seven years.

Less than two years from the next general election, Michael Noonan announced the first welfare hikes, income tax reductions and major public recruitment drive since the economy's spectacular nosedive.

With Ireland now being hailed as one of Europe's fastest-growing economies, Mr Noonan insisted the country would not return to the boom-and-bust model of the past.

"The road we have travelled to get to this point has been very difficult and the Irish people have made major sacrifices, but the policies pursued by this Government have worked and the recovery in the Irish economy is well under way," he said.

"The recovery has not spread across the country yet and many families have yet to experience it. The Government is fully aware of this fact.

"For many people, the recovery will only come when they get a job. For some, the recovery will only come when they see more money in their pockets.

"For many families, the permanent return of a loved one who has emigrated will mark the end of the crisis and the start of the recovery."

Mr Noonan set the scene for the first payback for a country crippled by bank debts.

"This Government will not be returning to the boom and bust model of the past that has spectacularly and repeatedly failed the Irish people," he said.

Outlining economic forecasts, Mr Noonan told the Dail parliament he expects GDP growth of 4.7% this year and 3.6% next year.

Unemployment is predicted to come down to 10% next year.

Mr Noonan also confirmed a phasing out of controversial tax arrangements - known as the "Double Irish" - which allows multinational companies to slash their tax bills by locating in Ireland.

Major global technology and pharmaceutical firms have been able to use the scheme to save billions of euro.

"I am abolishing the ability of companies to use the 'Double Irish' by changing our residency rules to require all companies registered in Ireland to also be tax-resident," said Mr Noonan.

The law will kick in on January 1 next year for new companies, but firms already benefiting from the loophole will have until the end of 2020 to comply with the changes.

"This proactive change will not bring an end to international tax planning. That requires co-ordinated action by all countries," said Mr Noonan.

"By taking action now and making this change as part of a broader reform of our corporate tax system, we are giving certainty to investors about corporate tax in Ireland for the next decade."

But the finance minister trenchantly defended Ireland's 12.5% corporation tax, which has attracted criticism from some European leaders.

"The 12.5% tax rate never has been and never will be up for discussion," he said. "The 12.5% tax rate is settled policy. It will not change."

Some of the most significant changes outlined include:

:: Income Tax - As expected the top rate falls by 1% to 40% while the band for the payment of the standard rate moves from by €1,000 to €33,800 (£790 to £26,700) for single individuals

:: Universal Social Charge - The deeply unpopular tax on earnings will be altered to take 80,000 low paid workers out of the net. A new 8% ra te for incomes over 70,000 euro (£56,000) and an 11% rate for self-employed income over 100,000 euro (£79,000).

:: Tourism - The special 9% VAT rate for the hospitality industry will be retained, but with a warning that if businesses try to cash in by hiking prices there is no argument for keeping it.

:: Pensions - The 0.6% tax on lump sums saved for pensions will stop at the end of the year while a secondary 0.15% levy rate will run until the end of next year.

:: Farms - Stamp duty relief will apply for land transfers between close relatives.

:: First Time Buyers - The tax paid on the interest on savings, Dirt, will be refunded up to 2017 for people who use the money to finance deposits worth up to one fifth of the cost of their first home.

:: Water charges - An income tax relief up to a maximum of 500 euro (£400) will apply to each household.

Among hikes to pay for the 585 million euro (£465m) measures, the price of a packet of 20 cigarettes will smash through the 10 euro (£8) barrier with a 40 cent increase from midnight.

A 25 gram pouch of roll-your-own tobacco will go up 20 cents in price.

Taxes are being frozen on alcohol, petrol and diesel and there will be no changes to motor tax or Vehicle Registration Tax.

"I am not raising any other taxes because I am able to fund the costs of these reforms and incentives through improved tax revenues arising from economic growth and continued expenditure restraint," Mr Noonan said.

Among the spending measures being offered by the Government are:

:: Water - With the country introducing charges for water since October 1 this year a payment of 100 euro a year is being offered for those on household benefits packages and the free fuel allowance scheme to help with the new utility bill benefiting 653,000 households.

:: Children - A five euro (£4) a month increase in child benefit from January with plans to add another five euro in 2016.

:: Elderly - A nine euro (£7) week increase to the living alone allowance to benefit 180,000 older people.

:: Dole - A 25% Christmas bonus payment for social welfare recipients this year and a new Back to Work Family Dividend will be introduced allowing families to claim the 29.80 euro (£24) a child for one year after a parent's return to work and half of the payment in the second year.

:: Housing - A 2.2 billion euro (£1.75bn) three year fund for social housing to build 6,700 homes.

:: Education - 1,700 new full time posts including 920 teachers, 480 resource staff and 365 special needs assistants.