Michael Noonan (Limerick City, Fine Gael)

It is just under nine weeks since the new Government assumed office, having obtained a secure and stable mandate from the people. We have agreed a programme for Government, motivated by a clear vision of an Ireland that, by the end of our term in office, will be recognised as a modern, fair, socially inclusive and equal society, supported by a productive and prosperous economy.

As indicated in the programme for Government, the success of our economic strategy will lay the foundation for the rest of our agenda for change. That economic strategy in turn is based on several essential elements that include fixing our broken banking system, restoring order to our public finances, regaining and enhancing our international competitiveness, supporting the protection and creation of jobs, radically reforming our system of public administration and rebuilding Ireland's reputation on the international stage.

We have hit the ground running. Within three weeks of taking up office, we took firm and decisive action to recapitalise and restructure the domestic banking system to restore the banks to a position where they are fit for the purpose of supporting economic recovery. Within three more weeks we re-engaged with the European Union-International Monetary Fund-European Central Bank partners to renegotiate the Programme of Support for Ireland.

We have also confirmed our commitment to bringing the public finances on to a sustainable trajectory and to achieving a deficit of less than 3% of gross domestic product by 2015. To this end, we have embarked on a fundamental and comprehensive review of public spending, both current and capital. We intend to use the results of those reviews as key building blocks in our budgetary plans for 2012 and beyond.

The Government is also committed to implementing a range of reforms to the domestic budgetary framework. It is our intention to have put in place by the end of June an independent fiscal advisory council and to publish, by the end of the year, a fiscal responsibility Bill which will set out a radically new approach to the management of the public finances. These important reforms will place Ireland's future budgetary framework on a more sustainable and credible footing.

Today, well within our first 100 days in office, we move forward with the jobs initiative. It comprises a set of measures that represents the new Government's first steps towards improving the economy's international competitiveness and promoting job creation. We are taking these steps against a background where the economy has seen three successive years of declining economic activity. Between 2007 and 2010, the volume of goods and services produced in Ireland fell by approximately 12%. This year, however, we can look forward to positive growth which we fully expect will accelerate as we move into 2012 and beyond.

The recently published stability programme update forecasts positive gross domestic product growth this year, a welcome development following the past three years. For 2012, my Department projects that gross domestic product will grow by 2.5%, with average growth of 3% per annum possible between 2013 to 2015.

Underpinning this expected rebound in economic activity is a strong outlook for goods and services exports. The picture emerging is one of an export-led recovery which is in line with expectations. A recovery in a small open economy such as Ireland's typically takes this form.

On foot of recent competitiveness gains and improving external demand, the exporting sectors of the economy are in general performing very well. Last year, exports increased by 9.5% in real terms, the strongest rate of growth for a decade. Looking to the future, export growth is projected at about 6.75% in 2011 and 5.75% in 2012.

Since the 1950s, Ireland has used its corporate tax regime as an integral part of its strategy to encourage growth, attract foreign direct investment and increase employment. We do not have the allure of a large domestic market or substantial public procurement to attract major international firms here, so we must use the other tools at our disposal. This approach is supported by research by bodies such as the Organisation for Economic Co-Operation and Development which points to the importance of low corporate tax rates to encourage growth in small open economies.

The Government is committed to continuing this policy approach, knowing that certainty is essential for existing and prospective investors. 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. The Government's message is, therefore, unequivocal. There will be no deviation from that position, one which also has broad cross-party support.

The corporation tax regime is a vital element of our industrial policy. However, other measures also have an important part to play. In this regard, Ireland has a very attractive research and development tax credit scheme that allows as a general measure 25% of incremental expenditure by a company on qualifying research and development to be set off against its corporation tax liabilities or, where there are no such liabilities, for the credit to be paid to the company.

Since its introduction in 2004, the scheme has influenced the decisions of many multinational firms to locate internationally mobile research and development projects in Ireland. To maximise the benefits to companies and further encourage investment and employment in research and development, I intend to amend the research and development tax credit legislation to enhance flexibility for companies in how they account for the credit, giving the option to account for it above or below the line.

Ireland's attraction for research and development activities has played, and continues to play, a critical role in encouraging foreign direct investment and creating employment. The Government intends to continue to enhance that attraction.

The jobs initiative is about encouraging employment. In that regard, I have reviewed the decision taken by the previous Government to introduce employer PRSI on share-based remuneration. This was a serious mistake and I intend to reverse it in the forthcoming finance Bill. The imposition of this charge on employers needlessly increases the costs of doing business in Ireland and would have the potential to negatively affect current employment levels and future investment decisions. Businesses operate under strict budgetary control in the current economic climate and increasing their costs is unwise. The potential loss to the economy from this measure far outweighs the potential yield to the Exchequer. Accordingly, I have decided to abolish the employer PRSI element with effect from 1 January 2011.

There is a perception that export growth is not jobs-rich which is true in general. Most exporting sectors in the economy tend to be capital rather than labour intensive. However, tourism is one very obvious exception to this general pattern. Much economic activity in the tourism industry is highly intensive in its use of labour. This is particularly true of hotels and restaurants, recreation and entertainment. In the case of tourism and exports, it is simply that the persons who purchase the goods and services come to the country to do so.

Its relative labour intensity makes it all the more unfortunate that tourism has greatly underperformed other exporting sectors. Far from expanding, as overall exports did, tourism continued to decline last year with the total number of trips by visitors to Ireland down by 13% on the 2009 level. This brought to 25% the cumulative decline in inbound tourism numbers between 2007 and 2010. Over the same period, earnings from tourism and travel fell by about 30%.

These figures reflect the scale of the challenge facing the tourism industry. They also illustrate the scale, however, of the opportunity that exists for the industry if it can get it right. Even by recovering the ground it has lost in recent years, tourism can make a substantial contribution to our economic recovery and to the creation of employment in all parts of the country.

Another strong reason we should make every attempt to capitalise on the potential of tourism is that significant investment has already taken place in this sector. Whatever about the merits of some of the schemes that encouraged this investment, we have a stock of accommodation, much of it of a very high quality by international standards, which we must now utilise to full advantage. We also have a stock of entertainment and recreational facilities that has been significantly enhanced by public investment in recent years, not to mention a transport infrastructure the capacity of which has been greatly augmented.

Overall, our tourism products are very strong. In addition to Ireland's natural attractions, we have a wide range of high quality accommodation, including hotels, guesthouses, B&Bs, self-catering accommodation and hostels, to suit all tastes and budgets. We offer a wide range of sporting and recreational facilities and events. Culture and heritage, golf, angling, walking, cycling and equestrian pursuits are all easily accessible. In recent years, holidaying in Ireland has become more affordable. These are some of the many advantages we must harness to improve visitor satisfaction and to increase the number of people from overseas who choose Ireland as their holiday destination.

While the provision of tourist facilities and amenities is important, marketing of what Ireland has to offer as a holiday location is crucial. The United Kingdom is our most important overseas market, with close to half of our overseas visitors coming from there. It is also the market that has seen the greatest contraction since the recession began. Between 2007 and 2010 trips to Ireland from Britain fell by 32%. It is critical that we see a return to growth in visits from the UK to achieve overall growth in tourist numbers. As part of a three-pronged strategy to promote tourism by encouraging airlines to improve levels of access for visitors to Ireland, tourism marketing resources will be made available for Tourism Ireland, working with the three State airports, to promote visitor traffic from destinations served by additional routes and services through co-operative marketing with carriers. The tourism marketing fund will support a strong focus on our major source markets, including the UK, to take advantage of the additional opportunities presented in 2011 by the forthcoming visits of Queen Elizabeth and President Obama. These visits present exciting opportunities to get Ireland back in the minds of potential tourists and are invaluable in terms of marketing and publicity.

The programme for Government provided for the lowering of the reduced VAT rate. Rather than applying a 1.5% reduction to the rate for all goods and services currently on the 13.5% reduced rate, I have decided to introduce a more focussed and larger reduction for certain goods and services while other items continue to be subject to the existing lower rate.

Consequently, as part of the measures to support the tourism industry, the VAT reduction will be targeted mainly at those services relating to tourism. In this context, a new temporary second reduced rate of VAT at 9% will be introduced with effect from 1 July 2011 until end December 2013. The new 9% rate will apply mainly to restaurant and catering services, hotel and holiday accommodation and various entertainment services such as admissions to cinemas, theatres, museums, fairgrounds, amusement parks and sporting facilities. In addition, hairdressing and printed matter such as brochures, maps, programmes and newspapers will also be charged at the new rate. All other goods and services to which a reduced rate currently applies will remain subject to the 13.5% rate. This measure is estimated to cost €120 million this year and €350 million in a full year. The purpose of this targeted VAT relief is to boost tourism and stimulate employment in the sector. I am confident that it will give the tourism sector a much needed shot in the arm. However, to ensure that the sector is delivering, the effects of the changes announced today will be assessed and the measures reviewed before the end of 2012 in the context of preparing Budget 2013.

To encourage overseas visitor numbers, I will provide for the air travel tax rate to be reduced to zero on a date to be fixed by Order.

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