THE CABINET will meet on Monday to make final decisions on the emergency budget which is expected to contain a €3.5 billion package of tax and savings measures, with much of the money coming from extra tax.
Substantial extra increases in income tax will be imposed on Tuesday in the form of income levies which will translate into increases in the standard and higher rate of tax in 2010.
The budget is expected to signal plans to introduce significant reforms in the banking sector and to indicate that it is planning to address bad property loans in the banks in a bid to free up new lending.
Minister for Finance Brian Lenihan is unlikely to reveal significant detail on how the loans will be treated by the Government, although he is expected to signal the Government’s intention to create an asset-management agency, a type of bad bank, to remove problem loans from the banks.
Mr Lenihan is also expected to announce his intention of broadening the tax base but new measures will not be implemented until next year after the report of the Commission on Taxation. The introduction of a property tax and a tax on child benefit are likely to figure among the tax-broadening measures designed to rectify the structural deficit in the public finances, which has developed due to the collapse of revenue from stamp duty and other property-related taxes.
Tax on the “old reliables” such as alcohol and tobacco are expected on Tuesday, with increases in petrol and diesel forming part of a new carbon tax. The exchequer returns published on Thursday show that the Government will raise about €34 billion in taxes this year but its spending programmes are set to cost more than €65 billion. The biggest item of Government spending is the €21 billion or more that will go on social welfare payments, but cuts in the basic rates are not expected in the budget.
However, Mr Lenihan may give a strong signal that basic rates will come down next year if prices fall by 4 per cent or more, as is widely expected.
The early childcare supplement of €1,000 per child under 5½ years is likely to be curtailed or abolished completely this year.
Taoiseach Brian Cowen signalled yesterday he has come around to the idea of cutting the number of junior ministers, with five of them likely to go to bring the number down to 15.
Addressing the Irish Management Institute in Dublin, Mr Cowen also said Irish banks were “in denial” about the level of their problems, when they sought Government support last autumn.
“We were told by the banks they could get cash from the private sector, but that wasn’t true. There was a certain sense of denial that was going on.”
Mr Lenihan is planning to visit international financial centres such as Paris and Frankfurt in the coming weeks to outline to investors who buy Government bonds of the budgetary measures introduced to address the growing deficit in the public finances.
Mr Cowen’s comments will increase pressure on the banks to provide realistic assessments of bad debts on their loan books ahead of the expected transfer of impaired loans to the “bad bank” agency being devised by officials. During the emergency discussions on the night before the State bank guarantee was introduced in September, the two largest banks, Allied Irish Banks and Bank of Ireland, asked the Government for cash injections and lobbied to have Anglo Irish Bank nationalised due to the threat to its survival.
It has emerged that the two banks left the overnight negotiations on September 30th believing the Government would nationalise Anglo Irish the following weekend, following the introduction of the bank guarantee.