Ireland's move to introduce a €10 air travel tax will hurt the competitiveness of the country's travel and tourism sector at a time of already tough business conditions, according to business groups.

Finance Minister Brian Lenihan announced the move in his 2009 budget on Tuesday in a bid to shore up state coffers as Ireland slides into its first recession in 25 years.

Mr Lenihan said it is estimated the tax, which will take effect from the end of March, will yield €95 million in state revenues next year and €150 million in a full year.

"It would be regrettable even in normal times, but its imposition at a time when the aviation and travel industries are in the most precarious position in living memory is unfortunate and unwise," said Eamonn McKeon, chief executive officer of the Irish Tourist Industry Confederation. "It is another blow against Ireland's competitiveness and for the amount of money raised it could and should have been avoided," he said.

Mr Lenihan said passengers will pay a lower rate of €2 on shorter journeys, adding that the decision was consistent with moves by other EU member states such as the UK and the Netherlands.

"This new tax will further damage already falling consumer demand for air travel and will put Ireland at a significant disadvantage for inbound tourism on which thousands depend for their livelihood," airline Aer Lingus said.

Shares in the national carrier finished down nearly two per cent while the main index closed 2.73 per cent up.

Aer Lingus's local rival, European low cost carrier Ryanair, had already urged the government this week not to introduce a travel tax, saying that it would discriminate against air travellers in favour of ferry passengers. It added that short-haul traffic from Shannon in southern Ireland could collapse as a result. Aer Lingus pulled its services from Shannon earlier this year over the issue of costs.

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