DEPARTMENT OF Finance officials told the three Opposition parties yesterday of concerns about the impact of the rapidly deteriorating economic situation on Ireland’s status with the international bond market.
Four senior officials from the department briefed Fine Gael deputy leader Richard Bruton, Labour deputy leader Joan Burton and Sinn Féin finance spokesman Arthur Morgan for 1½ hours yesterday. The politicians were accompanied by officials.
Sources from all three parties say the main focus of the presentation was on what officials described as “emerging pressures”: the disclosure that a new €4 billion gap had emerged, made up of further shortfalls of tax of between €2.5 billion and €3 billion and extra expenditure of €1 billion (for social welfare payments to the growing numbers of unemployed).
The officials referred to the €25 billion borrowing requirement for 2009.
In particular, they referred to the three-year bonds issued last week which raised €4 billion of debt at an interest rate of 4.1 per cent. That is 1.7 per cent higher than the interest rates being paid by Germany.
“We need to convince the markets that Ireland is committed to restoring the public finances to sustainable positions,” the presentation stated.
No specific details were given as to how the revenue would be raised, although party sources said there were references to a carbon tax, in addition to an income tax rise or levy. There was also criticism that no details or projections were given for 2010 and for 2011. The department invited proposals from the three parties, which it said it would cost on a confidential basis.
The Opposition parties have offered a range of different proposals to raise revenues and effect cost-savings in State expenditure.
Fine Gael has proposed a series of fiscal measures, outlined by party leader Enda Kenny in recent days. He also floated the idea of a third band of tax for higher earners. They include a carbon tax of €25 per tonne which would raise €500 million in 2009; an increase of 1 per cent in standard and marginal tax (worth €500 million).
Next year, it proposes cuts in the national drugs bill; a windfall tax on the ESB; cuts in the Fás budget for in-company training; a redundancy programme for public servants; a 5 per cent cut for public servants earning more than €100,000; additional cuts in public expenditure and a €1 billion cut in the capital programme.
The party also proposes new property taxes and cuts in personal PRSI allowances. Cumulatively that would raise €5.5 billion in 2010.
Labour said yesterday the Government should be cautious before targeting the 38 per cent of workers outside the tax net.
Instead, the party has proposed axing generous pension allowances to company directors; cutting interest relief on rental properties, saving €800 million and ending the status of “tax exiles”, saving €175 million.
The party wants the cap on pension relief lowered from €150,000 to €100,000 (yielding €186 million); and a ditching of the co-location scheme (saving €140 million).
Sinn Féin said it would unveil its proposals over the next fortnight.
Already the party has called for the lifting of the PRSI ceiling, which it says would yield €260 million, and the standardisation of tax relief, worth €1 billion.
The party says it is not opposed to tax increases but is likely to argue against a widening of the tax net. Instead it is likely to call for increases on higher tax earners.