| 25.4°C Dublin

Tax up, welfare down, another FG Minister warns of perils

Another Fine Gael minister today refused to rule out tax increases in December's budget and also raised the possibility that social welfare cuts will have to be introduced.

Brian Hayes, Minister for State at the department of finance, was speaking after Michael Noonan said yesterday that despite a commitment in the programme for government not to raise taxes, he would not "rule out any tax initiative, tax increase or tax reduction".

Mr Hayes told Newstalk's Breakfast programme that no Finance Minister in the history of the state had ruled out any tax initiatives six months into the year.

"And that's in normal times. We're in abnormal times, the eurozone is in crisis". The idea that the minister could say there would be no increases in tax did not make sense, he suggested.

Mr Hayes acknowledged, however that the government couldn't "tax the hell" out of people and that "we'll have to look at the social welfare system".

He said the same restraints faced by Michael Noonan six months into the year also applied to Social Protection minister Joan Burton. "We're in an inordinately difficult financial situation. We have to move on expenditure cuts. We have to make the cuts next year".

Mr Noonan warned yesterday that he could not rule out any type of tax increase because of the "fraught" state of the public finances.

The hikes would be on top of a new property tax on each household due to be imposed in January.

The surprise development came as homeowners face the prospect of another mortgage interest rate hike in July -- just three months after an April rate rise that added €45 to average monthly repayments.

The Coalition is obliged to come up with €1.5bn in tax hikes in Budget 2012 to be delivered in December.

The Government had promised there would be no increase in income tax rates or changes to bands or credits.

But Mr Noonan did not rule out any tax changes when he was pressed on the Government's economic plans. He did not specifically mention income tax but he said he was "not going to rule out" any tax hike.

Daily Digest Newsletter

Get ahead of the day with the morning headlines at 7.30am and Fionnán Sheahan's exclusive take on the day's news every afternoon, with our free daily newsletter.

This field is required

Under the EU-IMF bailout plan, a package of tax and spending cuts worth €3.6bn are to be made next year.

The current programme says €1.5bn will come from taxes with another €2.1bn from spending cuts. The Government may end up increasing the expenditure reductions once the spending review of all departments is completed.

But it is not clear if the proposed interim property tax, called the household service charge, will count as part of the general tax take.

The income will most likely go directly to the local authorities to pay for council services. As a result, the Government grant to councils would be reduced, thereby counting as a spending cut.

The Department of Finance said Mr Noonan was not misinterpreted when he said he could not rule out income tax hikes.

"The Government's taxation decisions are made on Budget Day," a spokesman said.

Mr Noonan said he was talking about the general issue of how to meet the fiscal targets and pay to run the country.

"The national finances are in a fraught situation. There's a fiscal correction of €6bn under way in 2011 and so far we're on target. We are slightly under profile on tax collection and we're also under profile on expenditure. So as we go into June, facing the end of the first half year, we're on target to achieve the fiscal correction of €6bn.


"Next year the commitment under the programme is a correction of €3.6bn, so over the two years there's a correction of €10bn. In those circumstances I am not going to rule out any tax initiative or any tax increase or any tax reduction. I say this at a level of principle. I have nothing in mind," he said.

During the 2011 general election campaign, Mr Noonan said his party did not want to increase taxes and would concentrate on spending cuts instead. "If we tax we lose more jobs. So we want to keep tax levels the same as they are and eliminate waste," he said.

Fianna Fail public spending spokesman Michael McGrath said another central plank of Fine Gael's election promises was "abandoned" as Mr Noonan refused to rule out income tax increases.

Also yesterday, European Central Bank president Jean-Claude Trichet stressed the need for "strong vigilance" to curb inflation.

Mr Trichet stressed that no decision had been taken about action in July.

Virtually all market-watchers are now pencilling in a 0.25pc hike in July, which would see Ireland's 600,000 variable and tracker mortgage holders pay €15 extra a month on every €100,000 they owe.

Most Watched