Budget 'focused on jobs' raises VAT by 2%

The Finance Minister said: "For the majority of the past 20 years, the VAT differential between the Republic and Northern Ireland was 3.5% and it was as high as 6.5% as recently as 2009.

"After the increase I am announcing today, the differential will not be 3.5%, it will be 3%, so on that basis I do not expect an increase in cross-border shopping."

The minister said the Fine Gael-Labour coalition Government was attempting to repair a decade of disastrous economic policy.

“The people of Ireland have paid a very high price for this mismanagement of the economy,” the minister said.

“Personal wealth has been destroyed, thousands of people are sinking into poverty, emigration has returned and unemployment is far too high.

“The task of this Government is to regain control over Ireland’s fiscal and economic policies, to grow the economy again and to get people back to work.”

Mr Noonan said he was bringing in a range of measures to boost smaller firms including tax credits on the first €100,000 spent on research and development.

A corporation tax exemption for new start-ups has been extended for three years to 2014.

This would help kick start the domestic economy, which will be the the “real engine” for job creation, he said.

There would also be incentives outlined in the Finance Bill for the international financial services industry in Ireland.

Mr Noonan said there would also be significant reductions in the rate of stamp duty for the transfer of commercial property, including farms, to encourage the transfer of family agricultural businesses on to the next generation.

One of the most significant tax changes in Budget 2012 will be to ease the burden of the Universal Social Charge, applied to the earnings of virtually all workers.

The threshold at which the 4% levy kicks in is to be raised from €4,004 to €10,036 from January 1.

The carbon tax will increase from €15 to €20 per tonne, hitting motor fuels, coal and home heating fuels.

In an attempt to add some optimism to the crippled property market, a new capital gains tax incentive has been drawn up.

The gains on any property purchased between midnight tonight and the end of 2013 and held for at least seven years will be exempt from the tax.

For first-time buyers who bought homes during the property boom, mortgage interest relief will be increased to 30%.

The relief will be phased out after 2012, to be fully abolished by 2018.

For first-time buyers purchasing next year, a mortgage interest relief of 25% will apply, while non-first-time buyers can benefit from a 15% relief rate.

On the old reliables of drink and cigarettes, Mr Noonan said the duty on tobacco will increase by 25 cent from midnight.

Alcohol is not being hit but the 2% VAT will apply.

Mr Noonan said a key plank of the Government’s Budget 2012 was to avoid touching people’s earnings and instead target indirect or discretionary taxes.

“The Programme for Government states that there will be no increase in income tax. This is the key issue for this Budget. I want to make clear that there will be no increase in income tax,” he said.

“People’s wages and salary in January will be the same as wages and salary in December.”

Mr Noonan said: "If we need a role model it should be the economy of the mid to late 90s where over 600,000 jobs were created and growth was based on competitiiveness, high educational standards, a credit flow from the banks to enterprise and hard work also."

Mr Noonan said he would also:

: Increase the current rate of capital acquisitions tax from 25% to 30%.

:: Increase capital gains tax from 25% to 30%.

:: Reduce the Group A tax-free threshold for capital acquisitions tax from €332,084 to €250,000.

:: Increase deposit interest retention tax from 27% to 30%.