The Irish Business and Employers Confederation (IBEC) has told the Government not to increase taxes in the forthcoming Budget, stressing that it should focus on controlling public spending in the economy.
In its pre-Budget submission, the business lobby has also urged continued investment in infrastructure, advocating measures such as putting tolls on busy roads to raise funds to finance key projects in roads, public transport, waste management and housing.
"The easy option would be to increase taxes. There should be no increase in taxes on labour or on anything that might impinge on competitiveness. We feel very strongly about that," IBEC economic director Mr Brian Geoghegan said yesterday.
Labour Party finance spokesman Mr Brendan Howlin slammed IBEC's submission, describing it as self-serving and economically unsound.
"What IBEC is saying is that vital public services should be cut back to pay for infrastructure. That is like trying to pay for your house without taking out a mortgage. It makes no sense. The logical course is for the Government to borrow money to invest in capital projects that will yield a return over many decades," he said.
IBEC has told the Minister for Finance, Mr McCreevy, that there should be no rise in employers or employees' PRSI. It suggests that income tax bands and tax credits should be increased by the expected rate of inflation and that there should be no increases in indirect taxes, such as VAT and excise duty.
The organisation has also warned the Government that it must honour its commitment to reduce corporation tax to 12.5 per cent in 2003 and that there should be no clawbacks from the corporate sector.
IBEC insists that a sharp reduction in the rate of increase in Government spending will be sufficient to alleviate pressure on the Exchequer finances. It is calling for the rate of increase to be no more than 8 per cent of gross national product compared with current levels of up to 20 per cent.
To achieve this, IBEC is proposing a freeze on the numbers employed in the public service. It is also advocating that the Government should postpone the public service pay rises recommended by the benchmarking body to help restore order in the public finances.
IBEC has told the Minister that once-off funds, such as those raised from privatisation of State assets or through additional receipts from the Central Bank, should be excluded from general Budget income. These monies should be specifically earmarked to finance capital or once-off projects, according to the body.
Despite the weaker economic conditions and the resultant deterioration in the Exchequer coffers, IBEC insists that nothing should hinder initiatives to improve the Republic's infrastructure. In its submission, IBEC cautions that it would be a "grave error" for the Government to try to deal with the problem in the public finances by cutting back on investment in infrastructure.
It believes the Government should be able to maintain a surplus on the current Budget and would support borrowing provided it was within "prudent limits" and for capital spending.
It accepts that funding for these commitments is now a problem and is advocating some creative thinking to address this problem. Apart from tolling roads, IBEC will tell the Minister that it also supports service charges, such as water charges.
Incentives could be provided to the private sector to achieve a huge expansion in the use of public-private partnerships and possible participation by the National Pension Reserve Fund.
IBEC has reduced its economic forecasts in recent weeks and is now signalling economic growth of 3 per cent this year followed by medium-term rates of 5 per cent out to 2010.
"The Irish economy is not yet in crisis. We have employment levels which would be unimaginable in the mid-1980s. The measures proposed by IBEC are intended to avoid a crisis developing in the public finances."
