Wednesday 26 July 2017

Coalition now has to find €3.8bn in taxes and cuts

Fionnan Sheahan, Thomas Molloy and Mark Hilliard

HARD-PRESSED families will be hit with €1 in extra taxes for every €2 cut in government spending next year as part of a €3.8bn Budget package.

A month-long 'softening up' of the public begins today when the Government reveals there will be €200m more needed in cuts and taxes than previously estimated.

The overall level of pain to be endured over the next four years will also be revealed this afternoon by Finance Minister Michael Noonan.

The forecast for economic growth next year will be reduced, resulting in the new adjustment figure of €3.8bn in next month's Budget.

The Cabinet last night signed off on the total amount of cuts and taxes to be implemented from 2012 to 2015.

The Government is committed to reducing borrowing to 8.6pc of economic output next year -- and to bring the deficit down to 3pc of gross domestic product by 2015.

The publication today of a pre-Budget document will be the start of a softening up exercise ahead of the Budget on December 6.

Over the next four weeks, the Government will publish four separate documents outlining its plans.

Taoiseach Enda Kenny will also make a state of the nation address in the week before the Budget.

The medium-term fiscal programme, which is also published today, will slash the growth forecast for next year.

The existing forecast that economic output will go up by 2.5pc next year will probably be cut by almost 1pc. The estimates for tax revenue and employment will also correspondingly drop.

But Mr Noonan warned yesterday the Budget would have been far harsher if the EU had not agreed to cut Ireland's interest repayments by €900m.

The country would be "in dreadful difficulties" were it not for the cut, he said.

Without the interest rate cut agreed over the summer, Mr Noonan would have had to slash spending and raise taxes by at least €4.5bn in next month's Budget.

The Department of Finance is already struggling with this year's targets. This week, the department said it collected less income tax and VAT in the first 10 months of the year than projected.

Detailed forecasts are needed to restore consumer confidence which has plunged in recent years, Mr Noonan said.

Plans

"Many people actually think things are worse then they are. The missing ingredient in Ireland is confidence," he said.

Mr Noonan said the Government had sent detailed plans to the European Commission on ways to chop as much as €20bn off the deficit before returning to bond markets in 2013.

The minister wants changes to the way the State pays for promissory notes that add €3bn to the Government's borrowing every year to pay for the wind-down of Anglo Irish Bank.

Mr Noonan admitted changes to the promissory notes may not be accepted although the Government and European Commission have exchanged position papers. Government officials have floated other ideas such as extending the repayments for 20 years to slash the annual repayments.

"While I can't tell you it will happen, I can tell you there's a process in place," he said.

Mr Noonan said Irish banks had seen deposits rise again in October following September's small gains.

Banks have also been able to borrow at 4pc on the money markets.

Irish Independent

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