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Budget 2013 comes into view

We aren't out of August and already the outlines of the 2013 Budget are coming into view. When he gets up to deliver his Budget in December, Finance Minister Michael Noonan is likely to unveil a €3.5bn package of spending cuts and tax increases.

Details of the likely shape of December's Budget are contained in a letter from Mr Noonan to the EU/ECB/IMF troika. The package will be split approximately 2:1 between public spending cuts of €2.25bn and tax increases of €1.25bn.

As the Cabinet begins preparatory work on the Budget when it comes back from its holidays next week, it is likely to find that, after four years of austerity, most of the "easy" spending cuts have already been implemented.

With the troika demanding further savings it will almost certainly find itself having to agree to highly controversial and politically painful spending reductions.

Universal payments -- particularly child benefit which is paid to all families, regardless of income -- will be in the firing line.

As the government parties struggle to reconcile their conflicting commitments not to cut social welfare benefits and public pay or raise income tax rates, something has got to give. That something could well be child benefit, which costs over €2bn, a tenth of the total social welfare budget, a year.

Pensions, which have avoided the two previous cuts to most other social welfare payments, are also vulnerable.

While the Government, mindful of the furore that erupted following the late Brian Lenihan's decision to scrap medical cards for the over-70s, will be reluctant to tangle with the grey lobby, such a relatively well-off group cannot expect to escape unscathed indefinitely.

On the spending side, the biggest single new tax will almost certainly be a property tax, which is likely to cost homeowners an average of €300 per year. Excise duties are also set to be increased, although how this can be done without further incentivising cigarette smugglers and diesel launderers isn't clear. Taxes on motoring, both VRT on the sale of new cars and the annual motor tax, will also rise.

The problem facing Mr Noonan and his colleagues is that, with economic growth already running well under target, will another severe Budget, by further depressing the economy, make an already bad situation even worse?

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