Tuesday 6 December 2016

VAT disclosure highlights the tax-versus-cuts dilemmas

Published 24/11/2011 | 05:00

THE absurd kerfuffle about the news from the German parliament about Michael Noonan's forthcoming VAT increases highlights once again that our political system is not fit for purpose.

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It also highlights that Mr Noonan is about to break his election promises in a fairly spectacular fashion. The problem is not that we know in advance what the VAT rate will be. The problem is the VAT rate itself.

Back in February, Fine Gael campaigned on a platform which promised that three euros would be shaved from exchequer funding for every euro raised in tax.

As the election campaign intensified, Mr Noonan rowed back and offered to save two euros for every euro raised in taxes while Labour campaigned for a one-to-one ratio.

The budget on December 6 will be far closer to Labour's pledge than Fine Gael's and this is why Mr Noonan will be forced to raise VAT. It goes without saying that taxes must be raised if we are ever going to bridge the horrendous gap between expenditure and income, but the main focus must be cutting expenditure.

Mr Noonan has made another mistake by ignoring the advice from the Fiscal Advisory Council which has said quite clearly that he won't meet the troika's targets if he makes an adjustment of less than €4bn on December 6.

We will probably never know whether this was a deliberate snub but it means that Mr Noonan has effectively wrung the council's neck at birth.

We won't know until sometime in the middle of 2013 whether the next budget worked and Mr Noonan has met the targets imposed by the troika.

What we know already is that the budget is breaking Fine Gael's promise to prioritise spending cuts over tax increases while ignoring the advice of the Fiscal Advisory Council -- the only independent organisation tasked with assessing the budgetary situation.

No wonder the Government had to put on the green jersey and whine about a so-called leak from the German parliament.

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