Putting squeeze on high earners a risky strategy
Wealth tax proposal could backfire as revenue evaporates from distorted regime
The 2015 Budget is due in mid-October. Since government debt is uncomfortably high relative to national income, and still rising, further Budget deficits are imprudent, and must be reduced in line with commitments to official lenders. The European Commission repeated during the week its view that a further €2bn in Budget adjustments – which means expenditure cuts and tax increases – will be needed in order to stay on the agreed path of deficit reduction.
Should the monthly budget figures improve over the next few months, the Government might take a chance with a lower adjustment target, but there is likely to be limited joy on that front. Even if the Government hits the target for next year, the deficit will still be around €5bn and the debt burden will still be rising through 2015.
An unjustified public expectation has been created that the economy is recovering to the point where actual tax reductions can be afforded in the Budget. This could turn out to be premature.