Budget: Govt. to take €12.4bn out of economy by 2015
THE GOVERNMENT will take €3.8bn out of the economy in December’s budget - €200m more than had earlier been anticipated - reflecting a slowdown in worldwide growth and domestic demand.
And it insists the savings of €200m are needed to prepare the country for any further shocks amid a deepening eurozone crisis.
The €3.8bn next year will be followed by amounts of €3.5bn in 2013, €3.1bn in 2014 and €2bn in 2015, according to the newly published medium-term fiscal consolidation plan which covers the 2012 to 2015 period.
It is also designed to show how the Government intends to reach its deficit target of 3pc of Gross Domestic Product by 2015 as set out in the terms of the EU/IMF/ECB €67.5bn bailout loans
But the Fine Gael led Government has committed to no “substantial” increase in income taxes in budget 2012 having pledged not to hike that charge ahead of the election earlier this year although it is not yet clear whether the bands will be adjusted.
It is targeting €1bn in new tax measures understood to include the site evaluation charge and increases in VAT, excise duties and carbon taxes and cuts of €750m in capital expenditure.
“Budget 2011 substantially increased income taxes through changes in the tax credits and bands and the introduction of the Universal Service Charge,” according to the document.
“Therefore, it is the Government’s objective not to make any further substantial changes in income tax in budget 2012”.
The lion’s share of the funds for next year will come from €2.2bn in spending cuts and €1.6bn in tax increases.
Of the €2.2bn in cuts, €1.45bn will come from day spending by Government departments, etc, while €0.75bn will be taken from the capital budget, roads, etc.
According to the document, the breakdown of €7.75bn in expenditure reduction and €4.45bn in revenue raising between 2012 and 2015 reflects analysis by international agencies like the European Commission, OECD and the IMF which suggests that fiscal consolidation tends to be more successful when it relies more on spending cuts than tax increases.
It also reflects the view that the scope for raising the overall tax burden in an economy as dependent on international trade and foreign direct investment as Ireland is limited by considerations of competitiveness.
The plans include further cuts in capital spending while the Government has also revised down its growth forecast for the 2012 from 2.5pc to 1.6pc effectively confirming that less taxes will be available for the period putting pressure on areas like social welfare payments and health.
Growth of 2.8pc over the following three years is expected.
A reduction in the growth forecasts comes on the back of a worldwide economic slowdown which means a smaller market for our exports and also weak domestic consumer spending.
Further details will be fleshed out, however, when Finance Minister Michael Noonan deliver’s his first budget next month.
"A key reason for the downward revisions is that the outlook for the global economy has deteriorated in the intervening period," Mr Noonan said following publication of the pre-budget document.
"The Government is making sure to allow the economic recovery that has commenced a chance to strengthen," he said.
But he also warned significant challenges lay ahead for the country in its bid to regain economic sovereignty.