Saturday 20 December 2014

Nevin Institute: Reduce Budget adjustments to €800m but no tax cuts

Colm Kelpie and Daisy Geoghegan

Published 25/06/2014 | 02:30

THE Government could impose a softer Budget with an adjustment of €800m and still meet a crucial EU deficit target, the Nevin Economic Research Institute (NERI) has said.

The planned €2bn in tax hikes and spending cuts would prolong austerity and do unnecessary damage to the economy, the trade union funded body said at the launch of its latest economic commentary.

Finance Minister Michael Noonan has already said that he believes reducing the deficit to below 3pc of the value of the economy can be achieved by doing less.

This is despite the advice of the International Monetary Fund, the European Commission and the Fiscal Advisory Council, the State's budgetary watchdog.

But NERI also warned that there wasn't any room for tax cuts as this would harm public services.

"Some of the tax cuts that we've heard about is concerning," said Dr Tom McDonnell of the institute.

"For example, changing the threshold on the marginal rate of income tax. That would only affect a small proportion of households, and of course those are the higher income households. Obviously that would be inequitable but it would also not be particularly effective in boosting demand.

"Higher income households are better able to save, so that would be a particularly poor choice of tax cut."

But it warned that further cuts to public spending will put "immense pressure" on public services and public investment.

Reforms

Nevin proposed a budget of about €800m composed mainly of increases in government revenue, through reforms to tax spending and Capital Acquisitions Tax as well as the introduction of a wealth tax.

It is also calling for an "off-book" investment package that restores public investment to the EU average in 2015. The investment package would be funded through the Ireland Strategic Investment Fund.

"It's about recovery now. We've moved past the acute phase of the crisis, but now we risk creating a chronic crisis, both in Ireland and in Europe," said Dr McDonnell.

NERI also said that while it agreed with water charges, it believes it could be done in a much more equitable way.

Irish Independent

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