Monday 20 May 2019

Brian's tax and grab

Fionnan Sheahan and Emmet Oliver

LOW-paid workers will be dragged into the taxation net and middle-income earners also face a wide range of tax hikes in the most draconian Budget in the State's history.

Taoiseach Brian Cowen yesterday quelled pressure from within Fianna Fail to call an election and will push ahead with plans to cut €6bn in the 2011 Budget on December 7.

After being forced to call a by-election in Donegal South-West, the embattled Coalition is now facing the prospect of its majority being reduced to just two for the crucial Budget votes.

But Mr Cowen is adamant the Government will stay the course and see through the €6bn austerity package for next year, consisting of spending cuts of €4.5bn and €1.5bn in increased taxes.

The Coalition also expects 45,000 workers to emigrate from the country in 2011, leading to just a small rise in unemployment as those who can't get jobs will opt to leave the country instead.

For those in the workforce, the prospect of a wide range of tax hikes is on the cards, such as widening of the tax bands, which will mean that around 30,000 more people on low incomes will now be paying tax.

PRSI increases and a possible further hike in income levies and higher tax rates are also being considered.

The Coalition yesterday confirmed it would reduce the deficit by €6bn in 2011 as it seeks to implement the deepest cuts in the first of a €15bn four-year budget plan.

The Department of Finance said the €6bn Budget would be based on a 3:1 ratio with €3 in cuts for every €1 in tax hikes.

Out of the €4.5bn in spending cuts, more than €2.5bn will come from day-to-day spending, which goes largely on social welfare, health and education services.

The items being targeted include:

  • A €1bn cut to health service funding;
  • A €1,000 hike in college registration fees;
  • A €9 cut to the old age pension;
  • Reductions in child benefit;
  • Cuts to social welfare payments;
  • A property tax.

However, yesterday's announcement had no effect on bond markets and international markets remained unconvinced by the Government's actions.

The European Union's economics chief described the Government's €6bn package of cuts for next year as "appropriate".


However, European Commissioner for Economic Affairs Olli Rehn warned the country faced "difficult but necessary" choices over the coming years.

"A 2011 budget involving a consolidation effort of €6bn ... would be appropriate, as it would strike a balance between allowing the recovery to strengthen and addressing budgetary challenges in a timely and frontloaded fashion," Mr Rehn said.

The cost of borrowing remained unchanged at a record 7.8pc. Today will be a crucial day as the markets digest the implications of the latest figures.

Irish borrowing costs have surged in the last week despite tough talk by the Government about getting the deficit under control.

Yesterday's plan does include a promise to get the deficit below 10pc next year, however.

The Government has already slashed its forecasts for growth.

A Department of Finance spokesman yesterday admitted the Government had underestimated the sheer scale of Ireland's economic woes.

The economy will only grow by 1.75pc next year and 3.25pc the year after.

However, some stockbrokers said the forecasts remained too optimistic.

The breakdown of the four-year plan shows further packages of cuts and taxes will follow: €3-€4bn in 2012; €3-€3.5bn in 2013; and €2-€2.5bn in 2014.


The €6bn adjustment next year means that by the end of 2011 the Government will have cut two-thirds of the spending needed to repair the public finances.

From the start of the economic crisis in 2008, through to the end of the four-year plan in 2014, €29.5bn will have been taken out in cuts and taxes.

By the end of next year, some €20.5bn will have been adjusted.

Employers group IBEC said yesterday's figures still left a lot of unanswered questions.

"Households will still be wondering tonight what exactly the adjustment will mean for them in taxation terms, however, and this will leave an air of uncertainty between now and Budget Day," IBEC director Danny McCoy said.

Irish Independent

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