Public subsidy for some air routes among support options being considered

A public subsidy for some internatisonal air routes is among the options being considered by the Government as part of a suite of measures to assist the aviation and travel sector, The Irish Times has learned.

A package of support measures for the sector will form part of the budget, to be announced next week. However, specific policy details such as an extension of the public service obligation support for under-pressure routes may not be announced on budget day, sources said.

The Department of Transport is looking at a range of measures to ensure that, to the greatest possible extent, Ireland's connectivity with the rest of the world is maintained. There is already public support for some air routes within the State, including between Dublin and Donegal, and the capital and Kerry.

A source said that an “envelope” of support for the aviation sector is being discussed as part of the budget, but that exact measures may not be finally decided at that stage. Any public support would also have to be signed off by European competition authorities.

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Mounting pressure

It comes as the Government faces into a crucial week of budget negotiations, with mounting pressure to introduce a VAT relief for the hospitality sector, which has been severely impacted by restrictions associated with Covid-19.

Government sources indicated on Sunday that there is a “good chance” that a special 9 per cent VAT rate for the sector would be introduced, especially as there are doubts over how effective a wider VAT rate cut introduced earlier this year has been at supporting the most hard-hit industries.

Nonetheless, a VAT cut would likely face significant resistance from officials, who have traditionally been hostile to the measure. There are concerns that repeating the policy intervention, which was deployed to support the sector during the financial crisis, could see a repeat of political difficulties that emerged when the Government tried to curtail it as the economy picked up again.

A spokesman for the Minister for Tourism, Catherine Martin, confirmed that she had received the report of a Government-appointed taskforce on tourism, which reportedly has recommended the reintroduction of the special VAT rate.

VAT

The spokesman said it is expected the report will be submitted to Government shortly. He added that budget matters, including VAT, are a matter for the whole of Government and that, in the coming days, Ms Martin “will be discussing details on a range of matters with her colleagues as she seeks to secure the best possible supports for sectors under her remit that have been severely impacted by the pandemic”.

Budget negotiations are expected to intensify this week, with pandemic supports for workers and businesses set to form a core part of discussions. Government sources indicated there was very little chance of the pandemic unemployment payment being returned to the top rate of €350 per week, while the cost of an extension to the local authority rates waiver – some €300 million per quarter – also counts against its inclusion on budget day.

The Government is also likely to face calls for increased capital spending, including on social housing and infrastructure, with a higher budget for Irish Water among items to be discussed this week.

‘Bold steps’

Speaking on RTÉ’s This Week programme on Sunday, Minister for Public Expenditure and Reform Michael McGrath said the Government had shown a “willingness to take bold steps” so far.

“It isn’t the time to withdraw vital supports for the economy. We are determined to pursue countercyclical policies; this is a time for the Government to step up and support the economy, support businesses and support jobs – that is going to be the overarching purpose” alongside protecting the health service, he said.

Asked about the VAT cut for the hospitality sector, he said nothing had been ruled out.