Government will have little or no scope for tax cuts, ESRI warns

Tax uptick may be offset by overruns in health and less revenue from water charges

Prof John FitzGerald of the ESRI: said the Government would be best advised to plan for a €2 billion adjustment “and hope for a pleasant surprise come September”. Photograph: Brenda Fitzsimons

Prof John FitzGerald of the ESRI: said the Government would be best advised to plan for a €2 billion adjustment “and hope for a pleasant surprise come September”. Photograph: Brenda Fitzsimons

Thu, Jun 12, 2014, 01:00

The Government will have little or no scope for tax breaks in the upcoming budget even with better-than-expected tax revenues, the Economic and Social Research Institute (ESRI) has warned.

Amid heightened public expectations of an easier budget in October, the economic think tank said positive tax numbers may be offset by overruns in health spending and less revenue from water charges, giving Minister for Finance Michael Noonan “very limited, if any, scope for tax cuts”.

Addressing its annual Budget Perspectives seminar in Dublin yesterday, Prof John FitzGerald said the Government would be best advised, at this stage, to plan for a €2 billion adjustment “and hope for a pleasant surprise come September”.

Mr Noonan has already stated he believes next year’s budget deficit target of 3 per cent can be achieved with an adjustment of less than €2 billion in October’s budget.

“The public finances are looking like that might come out a €1 billion ahead of target on the basis of tax revenue,” Prof Fitzgerald said.

Pension levy

However, he said much of this may be soaked up by ongoing cost overruns in health and less revenue from water charges, which was likely to be substantially less than the anticipated €500 million.

A key decision for the Minister, according to Prof FitzGerald, is whether the planned phasing out of the controversial 0.6 per cent levy on private pension schemes, which generates about €650 million a year, goes ahead next year.

“If they [the Government] get rid of that they’ve got to find €650 million by increasing taxes, not cutting taxes.”

In his address, Prof FitzGerald said the Government’s ongoing adjustment programme had been delivered in a “relatively efficient fashion”.

He said the Government had prioritised more employment-friendly adjustment measures, and this was borne out by the 100,000 jobs created since December 2012.

“If you compare the recovery this time to the one in the late 1980s, employment has come early rather than late and it’s been very vigorous.”

Not feeling benefit

However, Prof FitzGerald acknowledged many households were not feeling the benefits of recovery because of the continuing decline in real income, caused by the introduction of additional taxes, such as the property tax.