BUSINESS LOBBY group Ibec is calling for the Government to limit tax increases in the upcoming budget to €600 million and to focus on cuts from current expenditure as outlined in the McCarthy report.
In its pre-budget submission, entitled Recovery Through Enterprise, Ibec claims increasing the marginal rate of tax would make Ireland less competitive and says the tax base should be widened by a reduction in tax credits.
A 6 per cent downward adjustment of personal and PAYE tax credits would generate additional revenues of €550 million a year according to Fergal O’Brien, senior economist with Ibec, equivalent to about €6 per week per worker.
“To date, the adjustment has been split 50/50 between tax raising and spending reductions,” said Mr O’Brien. “We think that’s been excessive on the tax side and more damaging on the economy than if it had focused on expenditure.”
Taxes on property are the least damaging to economic growth, according to Ibec, and work should begin immediately on the introduction of a property tax, which could raise about €1 billion annually. In budget 2011, it recommends doubling of the tax on second homes, which would raise an initial €80 million.
The employers’ group also called for the introduction of incentives and “stronger interventions” to get the unemployed back to work. Mr O’Brien said members had reported offering jobs with a salary of €35,000, which had been turned down as the employee would be better off on social welfare.
Ibec director general Danny McCoy said lack of consumer confidence was stalling recovery of the domestic economy.
He said the setting of four-year budget targets would provide certainty and could break the “vicious circle” whereby “people are saving too much, leading to job cuts and worsening public finances”.
Ibec believes €3 billion to €4 billion of private savings could be unlocked to boost domestic demand if consumers had more certainty about the future.
Mr O’Brien suggested the cost of the banking bailout will be manageable. The gross debt level of Ireland will be in the range of 110-115 per cent in 2015, when the US is predicted to be at 110 per cent, Italy at 125 per cent and the euro zone as a whole at 95 per cent.
Ibec is predicting Irish economic growth will be zero per cent this year, but GDP will grow by 2.5 per cent in 2011.
Mr McCoy said that while the smart economy “is not the only gig in town” the Government strategy for it should be delivered and Ibec is calling for changes in the tax regime to support innovative companies operating here.
