THE GOVERNMENT is not ruling out tax increases in the budget on October 14th as part of its response to the dramatic downturn in exchequer revenues this year.
In the wake of a six-hour Cabinet meeting yesterday, Minister for Defence Willie O'Dea said that an increase in taxes could not be excluded from discussions given the substantial shortfall in tax income for 2008 and the view that 2009 will be an equally difficult year.
"We will have to breach the Maastricht guidelines of 3 per cent of GDP [gross domestic product]. We will borrow [ only] as much as is necessary as excessive borrowing is bad in itself. We are not ruling out tax increases," he told The Irish Times.
Mr O'Dea said that yesterday's meeting had involved very intense discussion about additional cut-backs over and above those that have been already agreed. He continued: "If the cuts are not imposed, it would be worse, [borrowing of] a lot more than 5.5 per cent."
The scale of the challenge facing the Government was reflected by the length of yesterday's pre-budget Cabinet meeting and the disclosure that it is the first in a series of meetings that will be held in the run-up to the budget.
The Cabinet will take the unusual step of holding a further extraordinary meeting on the budget next Sunday, as well as devoting the bulk of next Tuesday's weekly meeting to budgetary matters. A further budgetary Cabinet meeting, possibly on Thursday, was also being mooted.
Ministers yesterday discussed fresh spending cuts of up to €800 million, according to Government sources. These are in addition to an estimated €1.3 billion in cuts for next year already agreed by the Government.
The sources confirmed that the additional cuts, if agreed, will result in Government spending next year being reduced, in net terms when inflation is factored in, by 5-7 per cent, or circa €2 billion in total.
In further comments on TV3's The Political Party, Mr O'Dea said the Government's main priority was to cut public expenditure to bring it in line with lower revenue.
"The main priority is on spending [cuts]. That's where the main focus will be and will be evident on budget day," he said.
Minister of State Barry Andrews agreed that the budget would be severe, but also argued that the public finances were reasonably healthy.
"We have €19 billion in the pension reserve fund. The Opposition has suggested the public finances are in a mess. That is not the case at all. I think things are not as bad as people make out," he told RTÉ's Week in Politics. "I think it's going to be a tough budget. I don't think anyone is under any illusions about that . . . It is the right thing to do, to send out a very strong message that we are going to get control of the public finances," he said.
Fine Gael's Leo Varadkar said that half the Ministers were panicking and the other half, including Mr Andrews, were in denial. "Brian Lenihan, before he leaves office in 2011, is going to double the national debt," he said.
