The Irish government will reduce its air passenger tax from €10 to €3 in a bid to support tourism, as part of the debt hit country's recent budget review.
The move goes against the growing trend in Europe of introducing or increasing air passenger taxes.
The UK saw its air passenger duty rise again in November this year, while Germany and Austria are set to introduce their own versions in the new year.
The reduced rate will apply on a temporary basis, from March 2011 until the end of the year.
Brian Lenihan, the Irish government’s minister for finance, said the tax will be reviewed next year and increased unless the airlines give “an appropriate response”.
The tax, payable by passengers flying out of Irish airports, was first introduced less than two years ago.
Lenihan said he had examined the issue in detail: “There have been calls for the abolition of the tax which is blamed for the reduction in our visitor numbers.”
He warned he did not want airlines using the tax cut as “an opportunity to raise their fees and charges”.
To encourage growth in air traffic, the Dublin Airport Authority will introduce an incentive scheme next year.
Lenihan explained this would “provide, subject to certain conditions, a full rebate of airport charges for any additional traffic above the current levels”.
Michael O’Leary, the CEO of Irish no-frills carrier Ryanair, branded the move a half-measure, which will be cancelled out by an increase in fees at Dublin airport.
“It is regrettable that this Government didn’t have the balls or vision to go the whole way and scrap this stupid tourist tax altogether, when at this new €3 level it will bring in less than €35m per annum,” he said.
“While the Government reduces the tourist tax by €7, the Government owned DAA monopoly has increased airport fees by over €11 per departing passenger over 2010 and 2011.”
The air travel tax is expected to yield €105 million in 2010, despite the impact of the volcanic ash crisis.
According to figures released by the Irish government, the reduction next year, will cost the treasury around €56 million.