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Lenihan targets €3bn in tax rises and more levies

Finance Minister Brian Lenihan is looking for €3bn in cuts and tax increases next year as part of the Government's drive to bring about economic recovery.

Mr Lenihan has said he will not increase marginal tax rates but he will introduce a new universal social contribution at a low rate or wide base as part of the package.

A €1bn cut in capital spending has already been provided for, he said, but another €2bn will be found through cutting the cost of public services and reforming the tax system.

He told the Institute of Taxation last night that public service payroll costs would have to be contained, and certain current expenditure programmes will eventually be scaled back or eliminated.

Nearly half of income earners would pay no income tax this year, according to Lenihan, so he said the tax base needs to be widened. However, he stressed that there was little or no scope for increases in marginal tax rates.

A new universal social contribution will be paid at a low rate on a wide base to replace the current employee PRSI, health levy and income levy, as part of the new €3bn package.

And the taxpayer could also expect water charges or service charges to be part of the package. Mr Lenihan wants to restore order to the public finances, repair the banking system and regain competitiveness, and invest to create new jobs.

Meanwhile Mr Lenihan has said he is disappointed that Postbank, the bank jointly owned by An Post and French bank BNP Paribas, is to cease operating by the end of the year.

He said: "I am disappointed but not totally surprised... we can't have a limitless number of banks in Ireland providing an unlimited amount of credit.


"If we're going to have a sustainable banking system in the future, it has to be founded on the economic realities of the country. It can't focus on boosting spending to unsustainable levels. It has to focus on supporting small and medium enterprises and jobs and legitimate consumer purchases."

He also defended the Government decision to back Nama -- he said that nationalising the banks would have dried up funding for the banks, like in Iceland.

He also defended the State guarantee to stabilise funding for the banks and the establishment of Nama to clean up the banks' balance sheets rather than investing in a stimulus package.

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