Cutbacks needed if €2bn tax take has no effect

PRESS CONFERENCE:THE GOVERNMENT will have to cut back on State spending if the €2 billion extra in taxation to be raised by the Budget does not stabilise the exchequer's finances, Minister for Finance Brian Lenihan has stated.

Under the Finance Bill published yesterday, which legislates for the Budget and some changes made since, the Government will take €2 billion in extra taxation from the economy this year.

"I have made it clear that I believe that this is the maximum amount which can be safely taken out of the economy," said Mr Lenihan.

If the exchequer's position deteriorates further this year and next year, the Minister warned that the Government's next actions will have "to be on the spending side".

A levy of 1 per cent will be payable by all those earning up to €100,000 a year, bar those earning below €18,000 annually, while those earning up to €250,000 will pay 2 per cent on income above €100,000.

The Minister has decided to impose a stiffer levy on the highest earners, who will pay 3 per cent on the sums they earn over €250,000. The 3 per cent levy will raise €60 million extra, and compensate for his post-Budget decision to exempt minimum wage earners. High earners will pay 20 per cent of the total raised by the measure.

Following a European Court of Human Rights judgment on a UK case, the Minister has decided to limit the Revenue's powers to levy taxes and penalties on the estates of the dead. Instead, such charges will be levied only if an agreement has been reached with the person before their death, though payments made up to now will not be refunded, he said.

The Minister said he had "been reluctant" to give the Revenue any more powers because "no compelling case had been made for them", and the changes necessary to bring Irish law into line with European human rights legislation "if anything, reduces them".

Capital acquisitions tax will rise two percentage points to 22 per cent, in line with the other taxation changes made in the Budget. An extra 3 per cent taxation will be levied on maturing life assurance policies and investments with effect from January 1st, 2009.

The legislation has been introduced "in the knowledge that we face the most challenging fiscal and economic conditions in a generation", he said.