Ireland’s government will impose a levy on domestic private pension savings, raising as much as 1.9 billion euros ($2.7 billion) to finance a job-creation program.
The government plans to apply an annual 0.6 percent charge over four years on pension assets, excluding funds providing benefits to non-resident employers and members, Finance Minister Michael Noonan said in Dublin yesterday. The move should generate 470 million euros ($675 million) a year, he said, adding pensions had received “massive” tax breaks in the past.
The sales-tax rate on tourism-related products and services will be cut to 9 percent from 13.5 percent, while a travel tax will also be suspended, subject to conditions, he said. The government will also introduce a partial loan guarantee program for small and medium-sized businesses.
“There is no escaping the fact that we do not have the resources available at present to fund large-scale policy initiatives to help to generate economic activity,” said Noonan. Still, “I believe that today’s jobs initiative will help rebuild confidence amongst households and firms at home and among potential investors abroad.”
With unemployment close to a 17-year high, Ireland’s new government is seeking to create jobs within spending restrictions set in the country’s bailout from the European Union and International Monetary Fund. Prime Minister Enda Kenny pledged that the measures will have a neutral impact on the budget published in December, with the pensions levy offsetting tax cuts and spending increases.
“I am disappointed that ordinary workers trying to save for retirement are being targeted to help fund this jobs initiative,” Gerry Hassett, chief executive officer of Irish Life & Permanent Plc’s retail unit, in an e-mailed statement. “Clearly we have to deal with today’s crisis in the public finances, but we must avoid creating an even bigger fiscal crisis for the next generation in the process.”
Ireland cut its 2011 economic growth forecast to 0.75 percent from 1.75 percent on April 29, citing weaker-than-expected domestic demand. The country’s unemployment rate was 14.6 percent in April.
Moody’s Investors Service warned on May 8 its current Baa3 stance on Ireland, the company’s lowest investment-grade rating, could face “downward pressure” if the ability to restart debt sales is hampered by “adverse sovereign developments in other euro-area peripheral countries.”
The country was forced into an 85 billion-euro international rescue in November as it sought to solve Europe’s worst banking crisis. It has been struggling to convince investors its debt is sustainable after the collapse of a domestic real-estate bubble in 2007.