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Income tax, child benefit to be hit in Budget

THE Government is planning to hike income tax rates by 1pc and cut child benefit by 10pc to generate €750m as it prepares the most draconian Budget in the history of the State.

A straight increase of 1pc on the standard 20pc rate and higher 41pc rate would bolster the Government's finances by €500m as it seeks to secure around €4bn in savings and cutbacks.

A straight 10pc cut to child benefit would rake in €250m.

Government sources last night confirmed income tax hikes and child benefit cuts were now on the table for December 7.

"The overall figure is increasing so we have to find additional revenue and additional savings. Nothing has been decided yet, but ministers know they have to achieve savings and cuts in the region of €4bn. They can't get to that without going at tax," a source said.

"The money has to come from somewhere."

A 1pc hike in the 20pc rate would produce €353m next year or €479m in a full year.

A 1pc hike in the 41pc rate would produce €126m next year or €181m in a full year.

Child benefit was cut by 10pc last year. A further 10pc cut would give the Government €250m without having to resort to the complex process of means-testing.

A further €1bn savings could come from cutting the capital programme.

The remaining savings are expected to come from other social welfare cuts, health budgets, merging and abolishing quangos and narrowing the tax bands.

Last week, Taoiseach Brian Cowen gave his starkest warning yet to workers that tax hikes were on the way in the December Budget.

He refused to say whether this would involve lower paid workers being drawn into the income tax net, or if child payments would be cut.

Mr Lenihan last night warned the Budget target would be "well above" the existing figure of €3bn. But he insisted he had no overall figure yet as he continued to work on a four-year framework.

He is currently in Washington for "routine meetings" with the International Monetary Fund, which, he said, had accepted that the Government had taken the right steps to deal with the banking crisis.

Mr Lenihan will meet US investors tomorrow in a bid to reassure the markets.

Government sources said there was pressure on ministers to look at areas previously off limits, such as taxes.

"Nothing has been decided yet, but ministers now that to achieve in the region of €4bn, they can't get to that without going at tax," a source said.

Other options include cutting a single person's tax credit by upwards of €300 and cutting the married tax credit by €600 in a bid to save another €500m.

The Green Party is pushing again for a "super tax" on incomes above €100,000.


But it is unlikely to receive any support from Mr Lenihan and Enterprise Minister Batt O'Keeffe who are expected to argue that it would discourage foreign direct investment.

Meanwhile, speaking at the Institute of International Finance in Washington yesterday, Central Bank Governor Patrick Honohan insisted Ireland's politicians were committed to reducing the deficit.

"My understanding is that there is cross-party understanding of the need for budgetary consolidation on an urgent basis," he said.

Prof Honohan also said there would be no "aggressive" action toward senior bondholders in Anglo Irish Bank and Irish Nationwide.

Responding to claims that financial regulator Matthew Elderfield last week said the Government could enter into negotiations with them, Prof Honohan said those comments were "theoretical" possibilities.

Irish Independent