Overview of the Jobs Initiative
The Minister for Finance, Michael Noonan, T.D announced the Government’s much awaited Jobs Initiative 2011 yesterday 10 May 2011. In the Initiative he outlined a number of proposals aimed at incentivising entrepreneurship and job creation including specific measures for the tourism sector, labour activation initiatives on public capital projects on schools, roads and retrofitting and measures to improve access to credit for SMEs.
In his speech the Minister reiterated the Government’s commitment to the 12.5% rate of corporation tax as an integral part of Ireland’s strategy to encourage growth, attract foreign investment and increase employment “Let me be absolutely clear on this issue: our 12.5% rate of corporation tax is here to stay. It is central to our industrial policy and is an integral part of our international brand.” Minister Noonan.
A number of other specific tax measures were included in the Jobs Initiative. These measures include:
1. Enhancement of the R&D Tax Credit Regime
The Government’s announced its commitment to enhancing flexibility for companies in accounting for the R&D credit above or below the line. This should serve to improve the competitiveness of our R&D offering particularly for foreign direct investors.
2. Share-Based Remuneration – Employer PRSI Abolished
The charge to employer PRSI on share based remuneration, announced in the last Budget, is to be abolished with effect from 1 January 2011. The Minister recognised the impact created by this increased business cost.
3. New 9% VAT Rate
A new temporary second reduced rate of VAT at 9% has been introduced for a range of good and services in order to stimulate employment. The supplies affected are broadly, but not exclusively, focused on the tourism sector. This new reduced rate of VAT will be introduced with effect from 1 July 2011 and will apply until the end of December 2013. Revenue this evening have published a full list of the supplies of goods and services subject to the new reduced rate
The impact of the new rate on the tourism sector will be reviewed before the end of 2012 in the context of preparing Budget 2013.
4. 8.5% Rate of Employer PRSI Halved
The lower rate of employer PRSI (8.5%) is to be halved on jobs paying up to €356 per week. This change is to take effect from 1 July next. The level of the minimum wage is to be reinstated on this date also.
This PRSI change applies to all employees earning up to this income level (and not just new employees) and will affect circa 600,000 workers.
The Minister also confirmed in his speech that the existing Employer Job (PRSI) Incentive Scheme is to remain in place until the end of this year. This scheme exempts employers from the liability to pay their share of PRSI for certain employees for 12 months.
5. Annual 0.6% Pension Levy
The Minister noted that the measures in the Jobs Initiative will be funded by way of a temporary levy on funded pension schemes and personal pension plans. A levy of 0.6% is to apply to the capital value of assets under management in pension funds established in the State. This levy will apply for 4 years, commencing in 2011, and is expected to generate €470 million per annum. Pension funds established in Ireland and providing services and benefits solely to non-resident employers and members will not be subject to the levy.
The Minister also noted that he will review the issue of reducing the tax relief on pension contributions in the context of the results of the Comprehensive Review of Expenditure currently being undertaken by the Minister for Public Expenditure and Reform.
6. Air Travel Tax to be Abolished
The air travel tax is to be reduced to zero. This is to take effect from a date fixed by Order and will be subject to agreement with airlines to bring in additional passenger numbers.
A review of the measure will be conducted before the end of 2012 to evaluate its success. The relevant legislation will remain on the statute book to allow for the tax to be recommenced if deemed appropriate.