Thursday 14 December 2017

Lenihan anti-tax rise stance is coming under severe pressure

BRIAN Lenihan remains popular with the business community, arguably far more so than the Taoiseach. But Lenihan's popularity is not because of his banking policy, but because he remains opposed to Ireland taxing its way out of recession.

Of course, Lenihan has taxed us all more, regardless of this general sentiment. For instance he doubled the income levy in April 2009 and famously raised VAT to 21pc in his January 2008 budget. But his ideological instincts remain the same -- the best route to closing the deficit is through spending cuts, not taxation.

This view is supported by virtually all economic literature, even though it is one hard sell politically.

But a couple of developments are now testing Lenihan's ideological purity on this issue. For a start, the Croke Park Agreement does not allow any reduction in public sector pay between now and 2014, which immediately limits Lenihan's alternatives to make the adjustment on the tax side.

Secondly, the €3bn-plus cuts needed for this year are going to involve some kind of reform of PRSI and the health levy. This reform will come via a new social contribution levy, but ultimately it will mean an increased tax burden, whatever about Lenihan's objections.

There is also likely to be fierce political objections to moves to rein in social welfare benefits and entitlements any further. One option is to tackle the automatic indexation of public sector pensions, but again that puts the government at odds not just with working teachers and nurses, but also retired teachers and nurses.

With a property tax likely to feature in the next two years of the adjustment and alternatives like further public sector pay reductions off the table, Lenihan's abhorrence of personal tax increases may falter.

Irish Independent

Promoted Links

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Also in Business