MINISTER FOR Finance Brian Lenihan has said that public pay and welfare would have to be reduced if the forthcoming budget was to create “a successful adjustment” in the public finances.
Mr Lenihan said the Government was borrowing about 12 per cent of the country’s annual wealth and that this would rise to 14 or 15 per cent if savings of €4 billion were not found in the budget on December 9th. “That is not sustainable for Ireland,” he added.
The Government will borrow €22 billion this year to address the shortfall between public spending and tax receipts, he said, and this deficit needed to be stabilised.
Speaking to the Chartered Accountants Leinster Society in Dublin, Mr Lenihan said there “doesn’t seem to be great scope” to increase taxes. The top rate of tax stood at 52 per cent and the Government “must proceed with great care” if the country was to remain competitive.
Higher earners would face a top tax rate of 68 per cent on pay of more than €150,000 if the Government sought to raise a further €1 billion by “soaking the wealthy”, said Mr Lenihan. This would be “practicably unsustainable”, he said.
The Minister said a carbon tax would be the only new tax to be introduced in December. “Apart from a carbon tax there will be no new taxes in this budget.”
A new property tax, as suggested by the Commission on Taxation, could not be introduced this year and would take “some years to implement”, said the Minister.
The commission’s report had been prepared for “peacetime conditions”, he said. “We are in wartime conditions – we have to raise whatever we can raise now.”
The Minister said it would be “a profound mistake” for the public to think the Government was being forced to correct the public finances due to the banking crisis. This was unrelated, he said.
He repeated that the Government may take larger stakes in Allied Irish Banks (AIB) and Bank of Ireland from its current preference share-holding of 25 per cent.
“If further capital is required in the near future the State stands ready to provide it,” he said. “So clearly there’s every chance that share could increase somewhat.”
Earlier, Mr Lenihan told reporters that AIB had yet to make a final recommendation on the candidate proposed by its board as the bank’s next chief executive.
The Government is resisting pressure from the board of the bank to appoint an internal candidate, Colm Doherty, head of the bank’s capital markets division and is instead seeking an outsider.
Mr Lenihan said the Garda investigation into Anglo Irish Bank involved “huge numbers of personnel” and “co-operation from other jurisdictions”.
“Many, many statements have to be taken,” said Mr Lenihan.
The Minister said he was satisfied the bank’s new chief executive Mike Aynsley was “taking every step possible to ensure that those who owe Anglo money pay up”.
Mr Lenihan said that loans owing by Anglo’s directors could not be varied “without reference back to me and I haven’t varied anything in that respect. Directors who owe loans owe the full amount . . . and this must be repaid or enforced”, he said.
Mr Lenihan welcomed the launch of the fund management company Asset Resolution Corporation, which is seeking to buy distressed property loans from Irish subsidiaries of foreign banks, saying it illustrated investors were showing “a degree of interest” in the Irish economy.
