Cantillon: Don’t count on one last austerity budget

Forward planning takes the aggro out of tax hikes for government

Taoiseach Enda Kenny said last week of the forthcoming budget: “This is the last of the really tough ones.”

Taoiseach Enda Kenny said last week of the forthcoming budget: “This is the last of the really tough ones.”

Thu, Sep 26, 2013, 01:00

Taoiseach Enda Kenny said last week of the forthcoming budget: “This is the last of the really tough ones.” Many will hope he can be taken at his word even as Irish economic growth refuses to match the Coalition’s optimistic expectations.

However, even before people get details of just how they will be affected by what the Taoiseach assures us will be next month’s final austerity budget, there are plenty of straws in the wind about further tax measures for 2015.

As Grant Thornton tax partner Bernard Doherty noted in yesterday’s budget briefing by the Irish Taxation Institute, government has become increasingly good at introducing taxes below the radar – over a year before they will actually take effect.

Already we know that water rates will be introduced, probably accounting for a major chunk of any new tax revenue required. And 2015 will also see local authorities able to increase the rate of local property tax by 15 per cent.

There is also a growing perception that reliefs – be it on pension lump sums, inheritance tax free thresholds or whatever – are moving towards €200,000.

And what else might we see? The tax institute was adamant there will be no U-turn on the conclusion of the four-year 0.6 per cent levy on pension funds, which ends next year. But that leaves open the question of how compensation for the Waterford Crystal workers will be funded.

And what about this year’s budget? Well the “good” news is that the full-year impact of measures already introduced, such as the local property tax, will bring in an additional €600 million of the €1.1 billion contribution expected from taxes.

That leaves about €600 million to find. On that basis, Doherty concluded the lower 9 per cent rate of VAT on certain businesses will end at year end as expected, with business owners possibly opting to absorb the increase rather than pass it on. Failure to end the relief, Minister for Finance Michael Noonan has said, would leave him looking elsewhere for €360 million. Hardly likely, says the tax group.

The rest will probably come from a broadening of the income tax and PRSI base, by lowering thresholds or reducing relief, the easy way to raise tax. And some sneaky ones that don’t kick in in 2014.

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