Tax hikes and cutbacks not needed in budget, Ibec says

The Government does not need spending cuts or tax hikes to reach next year’s budget deficit target, according to business and employers’ group, Ibec.

However, in order to have "some room to manoeuvre", Minister for Finance Michael Noonan should introduce a net €200 million package of adjustments, just 10 per cent of the €2 billion figure that was at one stage the Government's target.

Such a move would achieve a deficit of 2.7 per cent of gross domestic product (GDP), well below the Government’s 2.9 per cent aspiration.

The coming budget should be used to “end austerity”, Ibec says in a pre-budget submission published today, and which calls for a shift towards investment for the future.

Sustained growth

The group believes the Irish economy is heading into a period of sustained economic growth and the Government needs to act now to increase investment in third-level education, housing and a raft of other areas, to make up for the sharp cutbacks in capital spending imposed over the past number of years.

The latest economic growth figures from the Central Statistics Office mean that the Government could reach its 2015 deficit target of below 3 per cent of GDP without any cutbacks or tax increases, Ibec believes.

This would represent a massive switch from earlier suggestions from the Government, the Fiscal Council and the International Monetary Fund, that Ireland should seek to take €2 billion out of its budget deficit next year.

Fresh momentum

“We have an opportunity to put fresh momentum behind Ireland’s recovery,” said Ibec chief executive Danny McCoy. “Now is the time to draw a line under the period of painful austerity. It was necessary but the economy has entered a new phase.”

The employers and business lobby group wants the Government to cut the top rate of income tax to 40 per cent, from 41 per cent, and to change the tax system so workers start paying the top rate when a single person earns more than €34,800, as against the current threshold of €32,800. The change would benefit more than half of those in full-time employment.

It wants the Government to end the pension levy (which would cost €135 million), to reduce some consumer taxes (at a cost of €100 million), and introduce further measures to support small and medium- sized business (at a cost of €150 million).

It says the exchequer will get an extra €500 million from water charges next year, and should seek a further €385 million in current expenditure savings, to bring in a net €200 million reduction in the deficit.

The recommendations are designed to shift the tax burden off labour and to use the budget to give a boost to the domestic economy, while still making progress on the deficit.

However, with the business and employers’ group believing Ireland is heading towards a sustained period of economic growth of 3 to 4 per cent per annum, it says now is the time to increase investment in infrastructure substantially.

It believes one of the major mistakes made in the 1990s was to wait until economic growth took off before starting to put in place the infrastructure to accommodate that growth.

Infrastructure

With the cost of money currently at an all-time low, the business case for long-term infrastructural investment is excellent, it says, and it can be done in ways that do not add to the national debt.

Among the suggestions by Ibec is that “off-balance- sheet” methods of providing social housing funding need to be looked at, with the model of Irish Water being suggested as one possible solution.