€3.8bn in cuts and tax increases coming in budget

SPENDING CUTS and tax increases amounting to €3

SPENDING CUTS and tax increases amounting to €3.8 billion will be contained in next month’s budget, according to figures published yesterday by the Government. The adjustment is larger than had been mooted until the summer, but less than advocated by organisations such as the Independent Fiscal Advisory Council.

Minister for Finance Michael Noonan told a press conference in Dublin that the budget would include €2.2 billion in spending cuts and €1.6 billion in additional taxation next year. He said the final figure of €3.8 billion was necessary to satisfy the “sacrosanct” condition of the EU-IMF bailout.

The terms of the rescue demand that the imbalance between spending and revenue be reduced to 8.6 per cent of gross domestic product (GDP) next year. The deficit now stands at an estimated 10.3 per cent. “The budget will be hard on people,” he said. “I expect them to say it’s very tough. But if I can, I would like them to say at least it will be fair.”

Mr Noonan was speaking as he unveiled a medium-term fiscal statement which sets out the headline adjustments that will be made between 2012 and 2015, the target year for bringing Ireland’s debt back to 3 per cent of GDP. He said there would be no changes to tax rates, bands or credits next year, with revenues coming from other sources.

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However, the document was less emphatic, saying there would be no “substantial” increases in 2012. From 2013, it made clear that the avoidance of further tax hikes would be dependent on other tax and spending targets being met.

Mr Noonan would not respond when asked if the Government’s other main pledge – to maintain social welfare rates at their present levels – would be fulfilled, saying that was a matter for budget day.

The overall adjustment for the four-year period is €12.4 billion, consisting of €7.75 billion (62.5 per cent) in cuts and €4.65 billion (37.5 per cent) in revenue-raising measures.

This is halfway between the 50:50 split advocated by the Labour Party during the election campaign and Fine Gael’s proposal to achieve targets with fewer tax hikes and a greater emphasis on spending cuts.

Mr Noonan said that, as part of the EU-IMF agreement, the top rate of VAT was to rise to 23 per cent and that a property charge would be imposed, namely the €100 charge on eligible homes. This is projected to raise €160 million. He said carbon charges would probably be increased in line with climate change policy.

Day-to-day spending is to be cut by €1.45 billion. Some €750 million of the cuts will come from the capital investment budget. Mr Noonan agreed that some flagship projects would not go ahead. Asked if Metro North was one, he said it was up to the relevant Ministers to announce what was not going ahead.

Fianna Fáil’s finance spokesman Michael McGrath said he was disappointed with the level of detail. He said it was unclear on possible future income tax changes. “Its commitment not to increase income tax over the lifetime of the Government has been heavily qualified. Its focus today on raising significant cash amounts through indirect taxation will only cause further uncertainty and a reluctance to spend in the domestic economy,” he said.

Sinn Féin’s finance spokesman Pearse Doherty said the plan was anti-jobs and anti-growth: “The slashing of €750 million from the capital budget would mean the loss of 7,500 badly needed jobs next year.”

Mr Noonan said: “For a long time now, both the Government and the Opposition have been telling people we can’t get out of difficulty without cuts and tax increases. Everybody knew what they were voting for.”

The report assumes one of the slowest rates of economic expansion among forecasters such as the IMF and the European Commission.

In 2015, the Government expects unemployment to be 11.6 per cent. It currently stands at 14.4 per cent.