Wednesday 26 June 2019

Bleak outlook as more pain ahead

When he gets up to deliver his Budget speech on December 6, Finance Minister Michael Noonan will inflict further pain on Irish families.

With the Government now committed to raising €1.6bn from new taxes and increases in existing taxes in next month's Budget, every household in the country will be an average of more than €1,000 a year worse off in 2012.

And the pain will continue for at least three more years, with the Government now pledging to take a further €12.4bn out of the economy between now and 2015.

This €12.4bn will be split roughly 2:1 between spending cuts and tax increases, which means that, even after next month's bad news, Irish taxpayers will have a further €2.8bn of tax increases and new taxes to look forward to over the next three years.

Higher VAT rates, lower tax thresholds, reduced pension tax breaks, the introduction of a new household charge and increased carbon taxes (with Environment Minister Phil Hogan having abandoned his plans for a Climate Change bill, why isn't the so-called "carbon tax" called what it is -- a fuel excise duty?) are all on the cards.

To which one must ask: how much more pain can people take?

When one includes the four savage Budgets since October 2008, which have already taken approximately €18bn out of the economy, the measures announced yesterday will bring the total amount sucked out of the economy between October 2008 to the end of 2015, a period of just over seven years, to more than €30bn.

That's the equivalent of almost a quarter of our total national income (GNP).

That represents a fiscal adjustment of unparalleled severity. If there were signs that the treatment, no matter how harsh, was working then most of us would be prepared to accept it. But will it?

While all eyes yesterday were on the Government's reduced growth forecasts for national output (GDP) in 2012 and subsequent years, with next year's forecast being cut from 2.5pc to 1.6pc, the outlook for GNP, which is what is actually left over after multinational profits have been repatriated, is even bleaker.

For 2012 the Government is now predicting GNP growth of just 1pc and 1.7pc in 2012. In the real world such GNP growth, even if the forecasts prove to be accurate, will be barely perceptible.

In the absence of any significant economic growth, tax revenues will grow more slowly than forecast.

This in turn will force the Government to further increase existing taxes and introduce new ones.

Unfortunately there comes a point, a point we may have already passed, where piling an ever-greater tax burden on a chronically depressed economy becomes counter-productive, where the extra weight of taxation worsens the economic downturn. In such a situation the government ends up chasing its fiscal tail.

Irish Independent

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