Government faces 'redesign' of tax system - Taoiseach

THE GOVERNMENT faces the challenge of “redesigning the tax system” so that it will be sustainable in coming years, according to Taoiseach Brian Cowen who said there could be a structural deficit of €16 billion or 8 per cent of GDP.

Mr Cowen told the Dáil in the run-up to the supplementary budget next week that “there will be a need to examine tax expenditures and consider other means of raising taxes. We will also be obliged to cut expenditure programmes that are no longer regarded as necessary or to redesign them in light of the new circumstances in which we find ourselves.”

The Taoiseach made his comments as he confirmed an unemployment rate of 16,863 to 371,300. Mr Cowen said “it continues to rise strongly but the recent [rate] of increase showed some signs of abating. However, a fall is unlikely in coming months and seasonal factors mainly associated with holidays in the education sector, will further disimprove the situation in June”. Fine Gael leader Enda Kenny, describing the unemployment figures as “appalling”, appealed to the Taoiseach to drop the lower rate of VAT from 13.5 per cent to 10 per cent.

He also asked the Government to “seriously consider” the party’s proposals for the establishment of a holding company with “six commercially driven State companies reporting to the Department of the Taoiseach and having the opportunity to create 100,000 jobs all over the country dealing with broadband, renewables, biomass, smartgrid telecommunications”.

He added: “These are real opportunities, not fantasy.”

The Fine Gael leader also said the VAT rate directly affects the tourism industry, hospitality industry, construction industry and infrastructure industry “where jobs can be protected and where jobs can be created and where you give some opportunity to people who are being strangled by red tape and bureaucratic difficulties and where business is simply going down the tubes before our eyes”.

Mr Cowen said he could not discuss taxation at “this particular juncture” but he told Mr Kenny there was a “very fine judgment to be made” in reducing VAT or other taxes.

The Taoiseach pointed out that they had to “seek to replace” the major fall-off in tax revenues. He said the structural deficit had emerged because of a “change in activity in the economy”, as previous sources of tax revenues would not be available.

This deficit “could be of the order of 8 per cent or €16 billion”.

“The challenge the Government faces not only in the context of next week’s supplementary budget, but also in the coming years, is to redesign the tax base and the systems relating thereto in order to ensure that they will be sustainable.”

He said that “some of those changes will relate to increased income tax, while others will come about in due course on foot of a broadening of the tax base”.