Easier Budget on cards as Coalition fights over spoils
Finance Minister Michael Noonan has signalled that there will be an easier Budget – but squabbling within the Coalition over who should benefit intensified last night.
Tensions between Fine Gael and the Labour Party mounted as the Budget 2014 process kicked off at cabinet level yesterday.
Fine Gael upped the ante, with one minister calling for an income tax reduction "as soon as possible", starting with families on average incomes.
But Labour has indicated that it wants to see fewer spending cuts in areas like social welfare.
Differences over whether to ease up on austerity through tax cuts or spending increases are now coming into focus after Mr Noonan said there seemed to be "some leeway" for Budget 2014.
This is the first time that a Finance Minister has held out the promise of any easing of austerity after six bruising Budgets in a row.
But Fine Gael and Labour are already at loggerheads after Mr Noonan and Jobs Minister Richard Bruton both opted for tax cuts.
Labour says this is only one option as it wanted to see any additional resources directed towards reducing the cuts planned for next year.
Mr Noonan said the better-than-expected financial position meant there were now three options available to the Government:
* Sticking with the current plan of cuts and tax hikes worth €3.1bn.
* Easing back on austerity.
* Investing any available money back into the economy to drive growth.
An easier-than-expected Budget is on the cards because the Government is ahead of target on closing the gap between the tax take and public spending.
The IMF weighed into the debate yesterday, urging the Government to stick with its budgetary targets, despite the threat of "austerity fatigue".
In its tenth review of the bailout programme, it said the billion-euro savings from scrapping the punishing Anglo Irish Bank repayments should not be used to ease up on tax hikes and spending cuts.
Instead, the savings should be used as a buffer against "potential shocks", the IMF said.
The Cabinet yesterday discussed the Budgetary Strategy Memorandum for October's Budget. It recommitted to meeting over the next two Budgets the €5.1bn adjustment target due and the target agreed with the troika of reducing the deficit to 3pc of Gross Domestic Product (GDP).
But a spokesman for the Government could not say if this commitment meant that the targets of €3.1bn in tax increases and spending cuts in the October Budget, followed by a €2bn adjustment in the following Budget, were still in place.
Distinct differences emerged between the coalition parties over how the Budget burden would be eased.
A Labour spokesman said Mr Bruton had been expressing the view that a reduction in income tax would improve Irish competitiveness. But the junior coalition party knows such tax cuts could make it more difficult to reduce the planned €440m cuts in social welfare spending this year.
With the scene now set for a scrap between ministers who favour tax cuts and those who want to see more Government spending, Mr Noonan said in a speech on tax policy that taxing work and businesses was more harmful to growth than taxes on consumption and property.
The introduction of the Universal Social Charge has pushed tax bills for average workers to more than 50pc, he noted.
Marginal tax rates on income in Ireland are 52pc for employees and 55pc for the self-employed.
Speaking at the International Labour Organisation and Irish Presidency of EU Council informal ministerial meeting in Vienna, Mr Bruton said: "If we are to sustain and accelerate the transition in our economy and the jobs recovery that has started in Ireland, then we must as soon as possible begin to reduce the income tax burden, starting with families on average incomes who have gone through so much over recent years."