The tourist industry welcomed finance minister Michael Noonan’s pledge to ditch air travel tax and leave the hospitality sector’s 9 per cent VAT rate unchanged.

Mr Noonan said that the Government plans to cut the air travel tax to zero, but in return expects airlines to respond by opening new routes and building traffic into the Republic. “I have reason to believe they will do so,” he added.

The Minister said that the reduced 9 per cent VAT rate introduced for businesses such as restaurants, hotels and guest houses, and newspapers in 2011, would not change.

The rate was cut from 13.5 per cent in July 2011 as part of the Government’s first “jobs initiative”. Mr Noonan said the move has created 15,000 new posts in the Republic.

“The rate of VAT for the tourism and hospitality sector and the other sectors to which it applies is due to revert to 13.5 per cent at the end of this year,” he said.

“However, it is important that we reinforce success when possible, so I have decided to continue the 9 per cent rate of VAT for these vital sectors.”

The Irish Tourist Industry Confederation (ITIC) welcomed the move. Chairman Paul Carty, said it would allow the sector to plan ahead "with confidence that the nascent recovery in tourism can be consolidated, and more jobs created".

Aer Lingus welcomed the decision to eliminate the air travel tax. The company said in a statement that it had always been its position that it reduced demand and was counterproductive.

Neil Pakey, chief executive of State-owned Shannon Airport, said that the decision was timely and proactive.

“For international airports like Shannon, this initiative may help tip the balance in our favour when it comes to convincing airline customers to enhance existing and put on new services,” he said.