Economy cannot withstand bulk of cuts in next budget, claims think tank

THE ECONOMY “is too fragile to withstand a frontloading of the fiscal adjustment in budget 2011”, the director of an independent…

THE ECONOMY “is too fragile to withstand a frontloading of the fiscal adjustment in budget 2011”, the director of an independent think tank said yesterday.

Paula Clancy, director of Tasc, an organisation that aims to address economic inequality in Ireland, said the budgetary strategy pursued over the past three years had failed.

In its budget proposals, Tasc said a €3 billion economic recovery fund should be created with finance from the National Pensions Reserve Fund. It said tax increases worth €2.7 billion to the economy should be introduced including a 0.28 per cent property tax and a reduction in pension tax relief to the standard rate. It said €300 million could be found by cutting expenditure, including reducing consultancy fees by half, imposing restrictions on travel and subsistence and reducing support to private schools.

Tasc’s report, Investing in Recovery, Jobs, Equality, outlined a strategy to reduce the State’s €19 billion deficit “while creating the conditions for sustainable growth and job creation”.

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Speaking yesterday, Ms Clancy said: “We also argue that the bulk of the adjustment should fall on the taxation rather than the expenditure side,” she said.

Compared with other European countries, Ireland’s tax take was low, too narrowly-based and unstable, Ms Clancy said. Tasc’s proposals would minimise the impact of budgetary measures on low-income families and frontline services, she said. They would also minimise negative impacts on consumer demand and stimulate job creation.

“Investment, rather than further cuts, will be key to economic recovery,” Ms Clancy said.

The proposed economic recovery fund would be used to invest in a loan guarantee scheme for small and medium businesses costing €500 million and an extension of the existing PRSI exemption scheme for a further 12 months costing €36 million.

It would invest in education and training, research and development and in infrastructure upgrades including in the national broadband scheme and school building programme.

Tasc’s tax reforms also included the introduction of a €75,000 ceiling on artist’s tax exemption and the application of the 4 per cent health levy to rental and dividend income.

The suggested property tax of 0.28 per cent would raise an estimated €1.03 billion.

Fiona Gartland

Fiona Gartland

Fiona Gartland is a crime writer and former Irish Times journalist