THE COALITION’S first budget next week could be its least difficult during its term of office despite imposing almost €4 billion in austerity measures, Fianna Fáil has argued.
Party finance spokesman Michael McGrath said the cuts in the budgets of December 2012 and 2013 could be much deeper than envisaged because of rising unemployment and sluggish growth.
He said that as much as €4.5 billion in reductions might be required in the 2013 budget, some €1.5 billion more than forecast. “In many respects this [year’s] budget is not going to be their most difficult . . . the budget in year two or year three will be far more difficult,” he said.
Mr McGrath said his view was based on a combination of factors, including rising unemployment, slowing growth and wrong policy choices by the Government. In particular, he cited the proposal to increase VAT by 2 per cent, which he said was timed badly and would squeeze domestic demand.
His colleague Willie O’Dea said that if growth dropped by even 1 per cent, the Republic’s debt ratio to gross domestic product would rise to an “unsustainable” 135 per cent by 2015.
Both were speaking, along with public expenditure spokesman Seán Fleming, at the launch of Fianna Fáil’s prebudget submission in Dublin yesterday. The 35-page document supports the Coalition’s overall economies of €3.8 billion and also agrees that the measures should be split between €2.2 billion in cuts and €1.6 billion in taxes.
The document features many of the measures likely to appear in next week’s budget and is supportive of the Government stance not to increase income taxes or reduce welfare rates. However, it differs in a number of respects.
The party said it does not back the mooted VAT increase but said it would defer such rises to the last two years of the bailout programme. The document states it would address the €600 million shortfall by a series of measures.
They include: equalising duty for agricultural and motor fuel (€160 million); imposing a 5 per cent levy on off-licence sales (€100 million); increasing the universal social charge by 2 per cent for incomes over €115,000 (€65 million); increasing capital acquisitions tax and capital gains tax rates to 30 per cent (€155 million); increasing Dirt tax to 30 per cent (€50 million); and increasing carbon tax by €5 per tonne (€108 million).
There are some novel suggestions among the tax measures including the introduction of a so-called “fat tax” on high sugar food and drink.
On the expenditure side, the party estimates that €500 million could be raised by the “accelerated implementation” of the Croke Park agreement. The party also departs from the Coalition in relation to capital savings, opting for a €500 million cut instead of €750 million.
Mr McGrath defended the document against accusations that voters would consider Fianna Fáil untrustworthy. “We would say to people that this is a very credible document,” he said. “There’s something refreshing about . . . putting in specific proposals that will hurt people and annoy some sectors,” he said.
Opposition proposals: Main points
* 2 per cent increase in universal social charge (USC) for those earning more than €115,000
* Exemption from USC for 224,000 people earning less than €8,000
* No VAT increase in 2012
* €500 million decrease in capital expenditure (€250 million less than the Government)
* No cut in children’s allowance
* No increase in student fees
* Scrap private pension levy
* Establish economic advisory council
* Further reductions in pensions for retired public servants and politicians
* €5.6 billion jobs stimulus funded by pension reserves and mandatory investment from private pensions
* Accelerate Croke Park savings